D.C. Looking into $100M CRE Tax Blunder

Washington, D.C.'s, chief financial officer is looking into claims made by a group of attorneys that the District failed to collect more than $100 million in taxes from commercial real estate transactions.

The group, led by real estate attorneys Jeffrey Mitchell and Douglas Patton, deputy mayor for economic development under Mayor Anthony Williams, has asked the District to hire them to conduct a $2.5 million audit to pinpoint tax-dodging commercial property owners and get them to pay. But the CFO's office said that, even if it's determined that the city is owed the money, collecting it would take years of litigation—and still might not be successful. It's more likely that the District will fix potential gaps in the tax law and implement the tax going forward, government officials predicted.

“We are looking into it, but at this point the lawyers have not offered us any proof that a multitude of tax evasions exist,” Natwar Gandhi, a spokesman for the chief financial officer said.

The controversy stems from 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 their mortgages. Mitchell asserted that 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 refinanced $50 million of it, the city should tax the whole $100 million, according to Mitchell.

Mitchell raised the possibility that the city is owed more than $100 million in a recent letter to Gandhi and Attorney General Irvin Nathan. Mitchell and Patton said they would conduct the audit for between $1.5 million and $2.5 million.