Manhattan District Attorney Robert M. Morgenthau announced today that a Manhattan-based real estate partnership has pleaded guilty to filing false New York City tax documents and has agreed to pay the maximum criminal fine of $20,000.  This case highlights an anomaly in the tax assessment process:  even if a taxpayer lies to lower its tax assessment, the City cannot raise the resulting assessment once the fraud is discovered. 

Today’s plea stems from a proceeding brought by a real estate partnership before the New York City Tax Commission, New York City’s forum for independent administrative review of real property tax assessments set by the Department of Finance.

The partnership, 59 Realty Associates LP, operated a parking garage and had other commercial tenants in a property located at 59-63 Allen Street in Manhattan.  Although 59 Realty Associates LP reported business income from the parking garage, the partnership failed to disclose any income from its other commercial tenants.  This resulted in an inaccurate – and lower – tax assessment for the tax years 1998/1999 through 2004/2005.  In fact, had the partnership accurately reported its full income, its tax would have been increased by approximately $30,000 for each of the years relevant to the plea of guilty.

Despite a favorable tax assessment which was based in part on the partnership’s fraudulent filing, the partnership sought to lower its tax assessment by appealing to the Tax Commission.  The Tax Commission denied the partnership’s application.  During the course of the appeal, the Tax Commission uncovered the partnership’s fraudulent filing which failed to disclose its full income.  However, under current law, the original tax assessment cannot be increased, even if it is determined that the application to appeal the assessment contained false representations.  If the appeal fails, the assessment stands.  In other words, the Tax Commission can lower the assessment in an appeal, but cannot raise it even if it discovers fraud.  The only option is to bring a criminal case for the false filing which can result in a fine, but not an increase in the tax assessment.

The Manhattan District Attorney’s Office supports the efforts of the Tax Commission in seeking legislative changes that would enable the Tax Commission to sanction taxpayers who submit fraudulent statements through the enactment of 1) a local law that would provide the Tax Commission with audit power to combat fraud and abuse in the assessment appeal process, and 2) state legislation that would enable the Tax Commission to raise the assessment if it finds that the real estate has been undervalued by the Department of Finance based upon false information.

Although an income and expense statement containing false information was submitted by the defendant in today’s prosecution, this is not the norm.  Therefore the Tax Commission and the New York City Department of Finance have proposed local legislation to preclude judicial review if an income and expense statement is not filed with an application for administrative assessment review.
           
In this case, the general partner of 59 Realty Associates, 45 REALTY ASSOCIATES, INC., pleaded guilty today to two counts of Offering a False Instrument for Filing in the First Degree in connection with false New York City Tax Commission forms (TC-101) filed in tax years 2004/2005 and 2002/2003.  The defendant partner will pay the maximum criminal fine of $10,000 for each of the two counts, for a total of $20,000. 

Manhattan District Attorney Robert M. Morgenthau said, “Under current law, dishonest taxpayers are given an incentive to lie, because even if they are caught, their taxes will not go up.  The only recourse is to prosecute criminally, which, as this case demonstrates, we are more than willing to do.  However, common sense dictates that the law be changed to remove this incentive to cheat.”
 
Glenn Newman, President of the New York City Tax Commission, said, “The Tax Commission, the City’s administrative avenue for appeals of property tax assessments, relies on applicants to present truthful information concerning their properties, including details about a property’s use, its income and its expenses.  While the vast majority of applicants do so, this landmark plea should serve as a warning to those unethical individuals who attempt to avoid paying their fair share, and shift their tax burden to other New York City property owners.”

Mr. Morgenthau thanked Commissioner Rose Gill Hearn, Deputy Commissioner Vincent Green, Assistant Commissioner Alberta Ancrum, and Assistant Inspector General Carol DeFreitas of the New York City Department of Investigation.

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