Final Letter Report on the Follow-Up Review of the Removal of Cooperative Condominium Tax Abatements for the Ineligible Properties Identified in Our Recent Audit of the New York City Department of Finance

Executive Summary

This follow-up review was conducted to determine whether the New York City Department of Finance (DOF) removed the cooperative condominium tax abatements (Co-op/Condo Abatements) from ineligible properties that were identified in the recent report, Audit Report on the New York City Department of Finance’s Administration of the Cooperative Condominium Tax Abatement Program (Audit #SR16-055A), issued on January 27, 2016.  As discussed in that audit report, DOF allowed owners of at least 1,249 properties to receive Co-op/Condo Abatements for which they were not eligible.  These properties received 3,471 improperly granted abatements from Fiscal Years 2013 through 2016 that resulted in a loss of property tax revenue of at least $10,018,348.

Results

The review found that for the 2016/2017 tax year, DOF has removed the Co-op/Condo Abatement from 920 of the 1,249 properties that were identified as ineligible in the previous audit.  As a result, the City will realize a gain of $3,224,577 in revenue for 2016/2017 tax year.  This gain will continue as long as the property is owned by a corporation or LLC or the property is classified for non-residential use.  The review also found that ownership of 34 properties had transferred to an individual, which makes them eligible for the abatement in 2016/2017.

However, the review found that DOF did not remove the abatement from 295 properties that were identified as ineligible, which will allow the continued loss of property tax revenue in the amount of $651,413 for Fiscal Year 2017.  Specifically, the review found that DOF did not remove Co-op/Condo Abatements from 154 properties that, according to the current deeds on DOF’s Automated City Register Information System, are owned by either a corporation or an LLC and 141 properties that are not classified by DOF for residential use.

In addition, the review found that DOF did not remove the School Tax Relief (STAR) or Enhanced STAR exemption from 72 properties owned by a corporation or an LLC, which allows the continued loss of $25,008 in property tax revenue.

The follow-up review recommended that DOF should:

• Immediately remove the Co-op/Condo Abatements from the 295 ineligible properties.

• Immediately remove the STAR/ESTAR from the 72 ineligible properties.

In its response, DOF partially agreed with the report’s recommendations and stated that it would address the issues identified.  Further, the agency stated that it “appreciates the opportunity to respond to the findings and recommendations included in the above-referenced Draft Letter Report dated June 16, 2016.  DOF is taking steps to enhance its controls to prevent LLCs, corporations and non-tax class 2 properties from receiving cooperative condominium abatements.  In the last year, we have been working with OMB to secure resources to correct prior errors for all our exemptions and abatement programs and the FY17 budget allocates resources for such a purpose.”