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Real Estate Tax Certiorari: Challenging the Assessments

November 16, 2018

By Darya Shneyder, CPA, Senior Manager

The New York City Department of Finance determines the property value assessment for all New York City properties. The notice of property value is provided to the real estate owners in the middle of January every year. Such values are determined based on historical information that the Department of Finance has on record (based on previously submitted information), current market conditions as well as other factors. The assessment value determines the real estate taxes that will be charged for the upcoming year. Oftentimes, property value assessments increase annually; however, this does not coincide with the actual financial conditions of the property for the year of assessment. For this reason, real estate tax assessments determined by the Department of Finance can be challenged by the property owners, who must appeal to the New York City Tax Commission. The Tax Commission then performs an independent administrative review of real property tax assessments that have been made by the Department of Finance.

HOW TO CHALLENGE THE ASSESSED PROPERTY VALUE

To challenge the property value assessment for an income-producing property, a Real Estate Tax Certiorari filing can be made. Working together with property owners and their respective attorneys, a certified public accountant can prepare the information necessary to determine if filing a certiorari is the right action for the upcoming year. Based on the review of the annual preliminary information, the attorney makes the determination whether the potential reductions are possible. The attorney then files the certiorari.

CERTIORARI FORMS

Depending on the property class, different certiorari filings can be made. The most common filing is for “income-producing property” and is known as form TC201. The form presents general information on the property, rental occupancy and most importantly the income and expenses schedule for the year. If the income-producing property has an assessed value of $1,000,000 or more and income exceeding $100,000, an accountant’s certification (also known as form TC309) must be attached to form TC201. (Recently, legislation has been proposed to increase the assessment threshold.)

The accountant’s certification must be performed by an independent certified public accountant. The certification is provided upon the performance of an audit based on the information provided from the property owner. In addition to the accountant’s certification of TC201, the TC309 also identifies the accounting basis (accrual vs. cash) on which the filing is performed. Additionally, much like a financial statement, TC309 provides a section for footnotes, as well as an area to identify income and expenses that are not included in the income and expenses schedule of the TC201 (i.e., reconciling items.)

BEHIND THE NUMBERS

The information to be reported on the certiorari forms is governed by the Tax Commission of the City of New York. The information does not reflect the exact operations as they appear on the real estate owner’s internal financial statement. An internal financial statement may contain estimated allowances and projections; however, such information is not reported on the TC201 and would instead be identified on TC309. Some of the other most common reconciling items are building depreciation, interest income and expenses, along with amortization of mortgage costs. During the process of an audit, accountants perform audit procedures to report only on income and expenses as set forth in the regulations for the certiorari filings. The certiorari process does not end with the filing of the certiorari report. Once the report is filed (by mid-March) the property owner’s attorney takes over the process. The attorney files the petition, upon which questions may be raised by the Tax Commission related to the increases and decrease of income and expenses from the previous years, as well as other matters.

START THINKING ABOUT NEXT YEAR

At this time of the year, it is important to review your interim financial information. Discuss your anticipated annual year-end financial position with your Marks Paneth advisor who will guide you through the process of next year’s certiorari filing. As real estate specialists, we can help you identify the best plan for your property, which can potentially provide real estate tax savings for the following and upcoming years.

There are various deadlines involved in this process, some of which are as early as March 1. Filing instructions and forms for the 2019 certiorari filings will be provided by the Tax Commission in January 2019. At that time, you should already have a plan in place for your property certiorari filing.