The District’s chief financial officer is looking into claims made by a group of attorneys that the city failed to collect more than $100 million in taxes from commercial real estate transactions. The group is led by Jeffrey Mitchell and Douglas Patton, the deputy mayor for economic development under Mayor Anthony Williams. The attorneys want the District to hire them to conduct a $2.5 million audit to pinpoint tax-dodging commercial property owners and get them to pay. Sources in the Gray administration and the CFO’s office told The Washington Examiner that even if it’s determined the city is owed the dollars, collecting them would take years of litigation and still might not be successful. It’s more likely, they say, that the city will fix potential gaps in the tax law and implement the tax going forward.
“We are looking into it, but at this point the lawyers have not offered us any proof that a multitude of tax evasions exist,” a spokesman for Chief Financial Officer Natwar Gandhi told The Washington Examiner.
At issue is the interpretation of a regulation change dating back to 2001 that allowed the city to tax refinanced commercial mortgages. The D.C. Office of Tax and Revenue has been taxing commercial property owners on the refinanced portion of the mortgage. Mitchell, a real estate attorney, says the office should have been taxing the entire amount of the original loan. For example, if a commercial property owner has a $100 million loan and refinances $50 million of it, the city has taxed the $50 million. Mitchell says it should tax the $100 million.
Mitchell raised the possibility that the city is owed more than $100 million in a May 18 letter to Gandhi and Attorney General Irvin Nathan. When asked how he reached that number, Mitchell told The Examiner that it is based on the huge number of transactions that took place between 2001 and 2007.
The lawyers first approached the Gray administration about conducting that audit in February, according to the letter. Their original pitch was for them to do the audit for free and then be compensated based on the cash the city collected, Mitchell wrote. But they revised their pitch in the May 18 letter, asking for between $1.5 million and $2.5 million to conduct the audit. They said they would donate any compensation based on what the city collects to nonprofit organizations.
“Do we have a profit motive? Absolutely,” Mitchell said. “But it doesn’t change the law and the fact that the CFO didn’t follow the law.”
