Surge in D.C. tax office settlements reduces commercial property owners’ bills

District officials have knocked $2.6 billion off the taxable value of commercial properties owned by some of the city’s most influential developers through a series of settlements negotiated this year by the Office of Tax and Revenue, The Washington Post found.

The settlements — which in most cases went against the earlier recommendations of staff appraisers — reduced the 2012 assessments of more than 500 commercial properties. Some owners saw the value of their multimillion-dollar properties lowered by 40 percent or more, which shaved tens or even hundreds of thousands of dollars off their tax bills.

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Dramatic rise in D.C. tax office settlements

In a city chronically strapped for cash, the settlements represent a $48 million reduction in potential revenue for the 2012 tax year.

Tax office officials say they have embraced the settlements to save costs on tax appeal litigation. But the reductions have spurred anger and confusion among some tax office employees whose concerns have filtered out to internal auditors and the FBI, which has launched an investigation, according to three people familiar with the matter who spoke on the condition of anonymity because they fear they could lose their jobs.

In the past, the city’s chief financial officer, Natwar M. Gandhi, who oversees the tax office, has sharply criticized property tax reductions issued by the city’s independent tax appeals board. Gandhi has supported a change in law that would give the District the right to appeal the board’s reductions in D.C. Superior Court — a move meant to protect the city’s tax base. Yet in a year when the District’s commercial sector grew, tax supervisors signed off on settlements with property owners before the appeals process played out.

The $2.6 billion in property value reductions is more than eight times the total from 2011, when the tax office agreed to 164 settlements for a total reduction of $305 million, city records show. In 2010, there were 11 settlements with a total reduction of $43 million. In 2009, there were 35 settlements with $83 million in reductions.

Gandhi said he had no role in the tax office’s decisions to settle with property owners. But he defended the process and the settlements, saying the tax office must weigh the risk of costly litigation and acknowledge when early values assigned by appraisers appear to be wrong.

“It is a process that involves a great deal of judgment,” he said. “. . . Every dollar I care about — no doubt about that. But at the same time, we are human beings trying to do the job as best we can.”

Gandhi added that the $2.6 billion reduction represents a small fraction of the city’s property tax base, which includes homes, buildings and lots.

“When you look at large numbers like that, it’s a legitimate question,” he said of reaction to the $2 billion-plus figure. But, he added, “that is out of a tax base of $246 billion, amounting to less than 2 percent of the overall tax base.”

Property taxes are the city’s largest source of revenue, accounting for about 30 percent. Commercial properties were valued at about $71 billion this year. Commercial property owners pay a higher tax rate than residential owners — $1.65 per $100 of assessed value for the first $3 million and $1.85 per $100 above that, compared with a flat 85-cent residential rate.