Tax office investigates homestead deductions

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The criminal division of the D.C. government's tax office is investigating hundreds of property owners who claimed multiple homestead deductions, a special kind of tax break only available on primary residences.

The District's Real Property Tax Administration has referred to the criminal division of the D.C. Office of Tax and Revenue a list of 302 persons who sought homestead deductions on more than one property, according to the city's annual management report, which was released yesterday.

The homestead deduction reduces a property's assessed value by $60,000 prior to computing the amount of taxes owed, resulting in a tax break of more than $500.

Approximately 90,000 properties in the District receive homestead deductions or senior citizen tax credits. But to qualify, the owners must occupy the property and it must be a primary residence.

However, a management report yesterday from the city's audit firm, BDO Seidman LLP, which was released by the D.C. Office of the Inspector General, found "property owners in possession of more than one property received the homestead deduction tax credit and/or senior citizen tax relief, even though the owners did not qualify for these tax credits."

The report does not identify the property owners.

Martin Skolnik, director of the city's property tax administration, yesterday said the tax office's criminal division will help decide whether "there was blatant fraud" involving the 302 property owners who received improper tax credits. If so, he said the cases could be referred for criminal prosecution.

Thousands of other cases remain under review. Mr. Skolnik said officials in the property tax administration came up with a list of 8,000 property owners who were getting tax credits only available to D.C. residents, but who also did not vote or pay income taxes in the District and had no vehicle registrations or driver's licenses in the District.

Mr. Skolnik said the District removed tax credits for 2,400 of the property owners. They also were billed for back taxes.

"There is still research we're doing on the ones we haven't deemed fully eligible," he said.

The findings in yesterday's management report mirror the results of an inspector general's audit last year that found the city was losing between $1.1 million and more than $3 million per year because of questionable homestead tax credits.

In one case, the inspector general found a married couple was receiving the homestead deduction on three separate properties by using variations on their name for different property holdings. Others received deductions on more than one property by using different mailing addresses.

The report noted "a red flag should be raised when property owners have different property and mailing addresses."

Ed Lazere, executive director of the D.C. Fiscal Policy Institute, which analyzes the city's budget, said the issue of property owners getting homestead exemptions on more than one property isn't a new one. But he said tax officials appear to be placing increasing scrutiny who qualifies for deductions.

"They seem to be devoting more money into compliance, and a big part of that's intended to look at the homestead exemptions," Mr. Lazere said.