Final Letter Report on the Follow-Up Review of the Removal of School Tax Relief Exemptions 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 School Tax Relief exemption (STAR) and the Enhanced School Tax Relief exemption (ESTAR) from ineligible properties identified in our Audit Report on the New York City Department of Finance’s Administration of the School Tax Relief Program (Audit #FM15-070A) issued on June 17, 2015.  As discussed in that audit report, DOF allowed owners of 1,509 properties to receive STAR or ESTAR exemptions for which they were not eligible.  As a result, $422,520 in property tax revenue was not collected during Fiscal Year 2015.

Results

The review found that DOF had removed the STAR or ESTAR exemption from 246 of the 1,355 properties that our audit identified as ineligible due to corporate or LLC ownership.  We also found that an additional 294 properties are currently owned by individuals, and as a result, now appear to meet the ownership eligibility requirement for the exemption.

However, we found that DOF did not remove the STAR or ESTAR exemptions from 807 properties that, according to the current deeds in DOF’s Automated City Register Information System (ACRIS), are still owned by corporations or LLCs. Further, DOF did not remove the STAR or ESTAR exemptions from 8 additional properties with no deeds on file in ACRIS that DOF’s June 2015 and June 2016 quarterly tax bills show are owned by corporate or LLC entities. These 815 properties received a total of $713,454 in STAR or ESTAR exemptions in Fiscal Years 2016 and 2017.

When presented with the preliminary findings of our review, DOF officials explained that they needed to further investigate the ownership status of these 815 properties that, according to the current deeds and tax bills on file with DOF, are owned by corporations or LLCs.  Given the amount of lost tax revenue from exemptions being incorrectly granted to these properties, we urge DOF to devote the resources necessary to correct the errors.

DOF did remove the STAR/ESTAR exemptions from 152 of the 154 properties with a non-residential building class designation.  However, we note that in its response to the original audit DOF stated that its investigation found 13 of the 154 properties were eligible for the exemption.

The follow-up review recommended that DOF should immediately complete any outstanding reviews of the 815 properties we identified in this follow-up review and remove the STAR/ESTAR exemptions from all ineligible properties.

In its response, DOF agreed with the report’s recommendation and stated that it “is in the process of completing its outstanding review of properties identified as owned by corporate entities. Immediately following the review, DOF will notice the affected corporations or LLCs of their ineligibility. After noticing the ineligible corporations or LLC’s, DOF will remove the exemption from the affected properties by the next assessment roll (the next opportunity to revoke STAR benefits).” Additionally, DOF stated that it ‘is working with the Law Department to ensure that inappropriate prior-year benefits to business owners are recouped.”