After Comptroller Stringer Audit, Department of Finance To Collect More than $9 Million in Taxpayer Dollars

A July 2016 audit uncovered thousands of properties belonging to corporate entities and deceased homeowners that were wrongly granted property tax exemptions

Comptroller releases new follow-up review that shows corrective action will result in collection of millions in previously uncollected revenue

   After a July 2016 audit of the Department of Finance (DOF) revealed the agency improperly granted nearly $60 million in property exemptions between FY 2012 and FY 2017 – with much of it going to corporate entities and deceased homeowners – a new follow-up review released today by Comptroller Scott M. Stringer found the department has taken steps toward corrective action. Those steps, following Comptroller Stringer’s recommendations, will result in the City’s receiving an additional $9 million in revenue in the current fiscal year.

DOF is responsible for implementing and monitoring tax benefits granted under the Senior Citizen Homeowners’ Exemption – or SCHE – which provides a partial property tax exemption for those 65 or older whose primary residence is a one, two, or three family home, a condominium, or a cooperative apartment in New York City. However, a July 2016 Comptroller Stringer audit revealed that 3,890 properties improperly received a SCHE tax break between FY 2012 and FY 2017, resulting in a loss of close to $50 million in City property tax revenue. The prior audit also found 3,317 properties of deceased homeowners and corporate-owned properties had been improperly credited with an Enhanced School Tax Relief – or STAR – exemption worth more than $10 million. That initial audit recommended that the Department of Finance take steps to recoup lost revenue as a result of its wrongful application of those property exemptions.

Comptroller Stringer released a follow-up review of FY 2018 exemptions today, which found that DOF has taken corrective action since the original audit, removed the SCHE from over 2,000 properties where the homeowner had died, and also removed the Enhanced STAR exemption from more than 1,500 properties that did not qualify. As a result, the City will realize a gain of $9,201,392 in additional revenue for FY 2018 alone.

“We do this work to make government function better for New Yorkers, and to ensure that dollars that should go to our kids, our infrastructure, and services for those who need them most aren’t wasted. When government makes mistakes, New Yorkers expect agencies to respond – not with excuses, but with action. That’s exactly what happened here. While it’s extraordinary that ineligible corporations and individuals were receiving a tax break designed specifically for our seniors, that corrective steps have been taken is laudable. The Department of Finance deserves recognition for doing the right thing,” said New York City Comptroller Scott M. Stringer. “The Department reviewed our initial audit, recognized their errors, and took responsible steps to fix the problem. That’s why we do audits: to induce corrective action. Now, millions of dollars of revenue will be collected. That’s a win for taxpayers and a step forward for accountability.”

Comptroller Stringer’s follow-up review specifically found that for FY 2018:

• DOF has removed the SCHE from 2,057 properties where the homeowner had died, 67 properties that had corporate ownership, and 273 properties that contained four or more units;

• DOF prorated the SCHE for an additional 262 properties that contained four or more units;

• The Enhanced STAR exemption was removed from 1,523 properties; and

• As a result, the City will realize a gain of $9,201,392 in additional revenue for FY 2018.

During the follow-up review, DOF indicated to the Comptroller’s Office that the agency will remove or prorate the SCHE from an additional 576 ineligible properties and remove the Enhanced STAR exemption for 403 of those properties.  Removing or prorating the SCHE and Enhanced STAR exemptions for these properties will result in a gain of $1,292,820 in additional revenue.

To read the July 2016 audit, click here.

AFTER COMPTROLLER STRINGER AUDIT, DEPARTMENT OF FINANCE CORRECTS TAX STATUS OF NEARLY 100 MIXED-USE BUILDINGS IN QUEENS

City will collect an additional $1.28 million in taxes over the next five years that can be used to support schools, build roads and affordable housing 

Similar audit in Brooklyn identified over $2 million in potential revenue

   New York City will bring in up to an additional $1.28 million in revenue over the next five years because of changes at the Department of Finance prompted by an audit released today by New York City Comptroller Scott M. Stringer. The audit found nearly 100 mixed-use buildings in Queens that had been improperly assessed by the Department of Finance and taxed at an incorrect, lower rate.

Today’s findings follow a similar report from February which identified 197 misclassified mixed-use buildings in Brooklyn. Changes stemming from that audit will bring the City an additional $2.09 million in revenue over the next five years. Combined, the two audits identified an additional $3.37 million that will be collected through 2022.

“These two audits spurred immediate changes that will right a wrong and benefit our entire City,” Comptroller Stringer said. “To their credit, the Department of Finance took quick action after auditors identified misclassified buildings, and now the City stands to gain an additional $3.37 million in revenue over the coming years. That’s real money that can be used to build affordable housing, fix our streets, and support our schools.”

Properties in New York City are given one of four tax classes (Class 1 are one to three unit buildings, primarily used for residential purposes; Class 2 are all other residential properties; Class 3 are properties owned by utilities and special franchises; and Class 4 are all other properties not in Class 1, 2, or 3). This audit examined whether Class 1 mixed-use buildings in Queens were properly assessed and taxed by the Department of Finance as of May 2015.

Auditors identified 97 buildings that were misclassified as Tax Class 1 mixed-use buildings, and taxed at a lower rate than they should have been. DOF agreed that 78 properties should be taxed at 45 percent of market value, instead of the residential rate of six percent at which they had been taxed, and that 19 properties required additional interior inspection. In total, the Comptroller’s office estimated that after the changes are made, the City will bring in an additional $1.28 million in taxes over the next five years.

Auditors also found that 33 of the misclassified buildings in Queens had been inspected by DOF assessors within the last three years – raising questions about the agency’s training and inspection process.

The Department of Finance has already re-classified 78 of the properties, and agreed with all three of the audit’s recommendations, including that it should:

• Conduct an interior inspection of the 19 remaining properties identified in the audit as misclassified and ensure they receive the correct tax class;
• Make sure assessors are properly trained so they do not misclassify buildings; and
• Enhance its oversight and quality assurance to ensure buildings are properly inspected.

“The bottom line is that everyone should pay their fair share of taxes. The Department of Finance will now collect more revenue that will help to fund critical programs in our City. Going forward, this agency must strengthen its training and oversight to ensure properties in every borough are properly assessed, and the correct taxes are collected” Stringer said.

To read the full audit report, click here.