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Losing on Tax Abatement when NYC Falsely Calls You Not Primary Resident

Jennifer V. Hughes in Board Operations on June 25, 2013

New York City

June 25, 2013

Out of the 536,746 condo and co-op units in the city, about 366,000 unit-owners are eligible for the tax abatement, reports the city. The rest are excluded for a variety of reasons. Out of that number, the Department of Finance labeled 120,000 as occupied by "non-primary" residents.

But co-op and condo lawyers, managing agents and accountants say that number is incorrect. Owners and shareholders had until April 12 to contest that finding and prove they deserved the abatement. "We have co-ops where we know that most of the building has primary residents and the city flagged 50 percent as non-primary residents," says Michael Rogoff, vice president of Akam Associates, a management firm. "It's a mess. It's really a mess."

In some cases, apartment owners didn't realize the importance of the city mailing asking them to verify their residence and tossed it as junk mail. In other cases, Rogoff says the shareholders thought the letter was a scam because the return address was from New Jersey.

Attorney Stuart Saft, a partner at Holland & Knight, says the new exclusions concerning trusts and LLCs are "just unfair and mean-spirited. Many people use trusts for estate planning purposes and LLCs for privacy," he says, adding that he could imagine all sorts of fallout from the change. People might leave the city to avoid having to list their residence in their true name. Others with an apartment in an LLC might argue that since the city does not consider them to be primary residents, they don't have to pay city income taxes. "It's a mess," Saft says, echoing Rogoff.

Lost Abatements

When asked why the city handed out an abatement prematurely — when legislators in Albany were talking about changes related to non-primary residents — Owen Stone, spokesman for the DoF, says: "It did not make sense to revoke the benefits for all 366,000 unit-owners and bill them the full tax amount when we all knew that the law would be renewed in some fashion for the majority of them."

The way the law works, those who are losing their abatements will get only 50 percent of the abatement for that retroactive 2012-2013 year. They'll get 25 percent in the 2013-2014 tax year and then nothing come 2014-2015. If a co-op has already credited abatements to all residents and needs to reclaim them, how that is done is going to be different for every co-op, says Stephen Beer, a partner with Czarnowski & Beer.

This year will probably be the most difficult one for buildings to adjust to the new tax abatement, says Paul Korngold, a partner at Tuchman Korngold Weiss Liebman & Gelles. Although the overall tax bill is the same, with less money coming back to the building through abatements, the building could face issues from the mortgage-holder because there is less cash in escrow, he says. "If there is an escrow shortfall, the bank is going to look to the board to make that up. And the board may have to go to those non-primary resident shareholders to get the money."


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