The writer is a Reuters columnist. The opinions expressed
are his own.
By David Cay Johnston
Sept 27 Each year New York State lets real
estate investors evade at least $200 million of taxes. In peak
years the figure likely rises to $700 million, if known tax
cheating in another state is any indication. Some of the
investors who cheat New York State also cheat New York City out
of at least $40 million annually.
Back in the 1990s Jerry Curnutt figured out how to finger
such cheats when he was the top partnership specialist at the
Internal Revenue Service. Curnutt's computer sifted through tax
returns until he learned how to separate thieves from honest
taxpayers. The tax-evasion estimates of $200 million and $40
million are his.
Six New York state tax auditors took classes Curnutt taught
in June 2000 and gave stellar evaluations. California's top tax
auditor praised Curnutt's course as "effective, relevant and
most importantly, appreciated and understood by our auditors."
For a graphic, click link.reuters.com/cer93s
Why has nothing been done for more than 11 years to make
the cheats in New York pay what the law requires?
New York state and city are strapped for cash, slashing
services for the poor, disabled and elderly. With penalties of
up to 50 percent plus interest at penalty rates, the state is
easily due more than $5 billion from years still open to
collection, I calculate.
Every state has similar issues, but New York matters most
as the epicenter of highly leveraged real estate investment
Curnutt found that real estate investment partnerships with
depreciated properties often misreport gains when they sell.
That such cheating is widespread screams about tax law
enforcement looking the other way when those at the top steal.
In contrast, New York State has a well-deserved reputation for
going after people whose mistakes cost the state as little as
GO AWAY, THEY SAY
Yet in letter after letter since 2001, New York state tax
officials told Curnutt to go away, smugly insisting there were
no untaxed millions.
As head of audits for New York State, Thomas Heinz wrote
Curnutt in 2003 that the state was "not interested in pursuing
you or any other consultant on the matter" of systematic
cheating by real estate partnership investors. Months later
Heinz wrote a second letter that made it clear he had not
understood what Curnutt was proposing, while reiterating that
there were no untaxed millions to be found.
A year ago Curnutt again was told to go away because there
was no money going untaxed.
And yet in Pennsylvania, Curnutt's research "resulted in
the taxation of over $700 million in unreported income," the
Pennsylvania Revenue Department wrote in a letter to tax
administrators across the country in reference to a single
"Without his assistance, our staff would have spent
numerous hours getting to the crux of the issues, in that
especially complex case," Pennsylvania tax authorities said.
Pennsylvania has relied on Curnutt since 2002, calculating
that every dollar spent on his research and subsequent audits
was worth $10 of tax.
So why are sightless sheriffs ignoring massive cheating by
the most affluent among us?
The likely reason became clear nearly a decade ago when one
Kentucky tax official told Curnutt that the governor's office
did not want his services because it would uncover tax cheating
by influential citizens, meaning campaign donors.
It is time for New York's three top state officials, all
Democrats with higher ambitions, to do their duty, especially
since the thieves are virtually certain to include some of
their campaign contributors.
LAWMEN AND THEIR DUTY
Governor Andrew Cuomo, who harbors ambitions to be
president, made his name as a state attorney general who
appeared to get tough with Wall Street. Lieutenant Governor Bob
Duffy rose from Rochester street cop to chief and would love to
be governor. So would Attorney General Eric T. Schneiderman,
elected in 2010 on a promise to be tough on white-collar
Mayor Michael Bloomberg, an independent, has a similar duty
to go after tax cheats even if these should turn out to include
some of his friends.
New York law gives authorities leverage aplenty. The mere
threat of public exposure through civil lawsuits would prompt
many to write checks. For repeat offenders, the threat of
indictment for tax evasion would produce checks even faster.
Faced with the prospect of civil or criminal charges, many in
positions of public trust would be ruined if their names got
The general partners -- those in charge in the partnerships
Curnutt investigated -- took calculated steps to cheat and the
most serious offenders should face indictment and, upon
conviction, years of prison time. But many limited partners may
have assumed their K-1 tax statements were reliable. Innocent
victims owe taxes and interest, but not penalties. Those with
multiple untaxed gains are not innocents.
As lawmen Cuomo, Duffy and Schneiderman all understand
leverage. They have enough to lift billions into the state
treasury where it belongs just by indicating in letters that
failure to pay will result in disclosure of names. Will they?
Until Cuomo, Duffy, Schneiderman and Bloomberg enforce the
law, their official inaction lends credence to billionaire
Leona Helmsley's remark, quoted by her housekeeper, that "we
don't pay taxes; only the little people pay taxes."
This column will keep you posted on whether these officials
act or not.
(Editing by Howard Goller)