Edition: U.S. / Global

Tax Bills to Rise for Scheme's Beneficiaries

Published: March 13, 2002

The city's Finance Department plans to hand out new tax bills with whopping increases to the owners of 18 buildings. The department says those buildings benefited this year from a long-running scheme to pay millions in bribes for secretly reduced tax assessments on office towers, hotels and apartment buildings.

The properties are among the 545 that federal prosecutors say were part of a scheme that stretches back 35 years, in which Albert Schussler, an 85-year-old tax consultant, bribed assessors to reduce tax rates for his clients, depriving the city of tens of millions of dollars in revenues.

The Finance Department and the city's Department of Investigation are wending their way through years of property records and complex calculations, trying to determine the full extent of the city's losses. Finance Commissioner Martha Stark said she planned to issue corrected tax assessments by April 30 for about 18 properties whose tax bills may have been illegally reduced in January, when the city's latest tax roll was announced. Another two dozen properties with high priorities are also being scrutinized.

''We're putting a priority emphasis on the ones where they've taken bribes in the last three years,'' Commissioner Stark said. ''I expect we'll issue a change by notice for any property we determine should get an increase for this year.''

She declined to identify the owners or the properties, which were on a list supplied by the Department of Investigation.

But not everyone is waiting for the city to act. In an example of the repercussions of what is becoming one of the city's largest and messiest municipal scandals, the partnership that owns a small residential building near Times Square notified the city on Monday of its intention to sue for damages, asserting that the owner had paid more than a fair share of taxes to make up for those who paid less, because of the ''rampant corruption'' uncovered by the investigation. The owner is hoping to trigger an avalanche of similar lawsuits by owners who were not part of the illegal scheme.

''The guys who played by the rules had to foot the bill for the guys who didn't,'' said Martin Appelbaum, the manager for Lori Realty, the partnership that filed the lawsuit and owns a five-story brick walk-up at 356 West 44th Street, near Ninth Avenue. ''We just want what's fair and equitable.''

Mr. Appelbaum said the partnership, which is led by Arthur Morowitz, pays $36,000 a year in property taxes, which, he said, is more than twice as high as it should be. For 10 years, he said, Lori Realty has sought unsuccessfully to have the assessment reduced at the Tax Commission, which reviews challenges by property owners. He said the total damages were difficult to discern, although the assessment was based ''on an illegal and fraudulent assessment roll.''

But the amount attributable to the corrupt scheme may be small, tax lawyers say. After all, they said, the additional tax burden would have been borne by the owners of the city's 955,500 other properties. In other words, the other owners would have paid about $40 each on average to make up the estimated $40 million a year that Mr. Schussler's clients did not pay.

''I can't imagine it'll amount to much,'' said Richard A. Steinberg, a lawyer who heads the tax law bar in New York. ''But I understand what they're saying. If the allegations are correct, then the remaining property owners picked up more than their fair share.''

Another problem that may arise from the scandal has to do with landlord-tenant relations. Some lawyers have suggested that office tenants may be able to abort their leases if landlords try to pass on hefty tax increases imposed by the Finance Department.

Dan Fisher, an assistant vice president at Midland Loan Services, the largest company in the country that services commercial loans, said that his company was also keeping an eye on the scandal for any unanticipated jumps in property taxes. Property owners could be forced to put money into escrow accounts.

''We would have to make arrangements and get the funds from our borrowers,'' he said. ''It's not a good situation if their bill doubles and we give them fairly short notice to give the money to us.''

Last month, federal prosecutors indicted Mr. Schussler and 17 current and former city assessors on racketeering charges. No property owners were implicated in the scheme, and most said that they were completely unaware of Mr. Schussler's illegal activity on their behalf. But investigators and former tax assessors say that some owners had to have at least suspected what accounted for Mr. Schussler's remarkable success at reducing tax assessments.

Unlike tax lawyers and consultants who file complaints over tax bills every March, Mr. Schussler did his work well before the annual tentative tax roll was set on Jan. 15.

But property assessments are more of an art than a science, in which honest appraisers can come up with differing assessments. That can make it hard to detect illegal activity.

''The department is re-evaluating each and every property listed in the indictment to ensure the accuracy and the integrity of the final assessments,'' Ms. Stark said.