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More on Tax Prepayments: Note from the Scarsdale School Board and the IRS

clockAs time winds down for resolution of the issue surrounding prepayment of 2018 property taxes to decrease next year's tax burden, here's the latest information from the school board and the IRS.

School Board President William Natbony and Vice President Scott Silberfein responded to angry residents who called for the district to permit the collection of 2018 school taxes, without a warrant. They asked the district to simply collect estimated payments before year-end and reconcile the difference in paid vs. actual after the school budget for next year is passed. However, Natbony and Silberfein explained why they were unable to comply. See the full explanation below.

Also, today's New York Times alerts readers to an advisory notice posted on the Internal Revenue Service website that says, "To qualify for the deduction, property taxes not only need to be paid in 2017, they must also be assessed in 2017 — meaning that homeowners who prepaid their taxes based on estimated assessments, or who tried to pay several years' worth of taxes at once, will probably be out of luck."

If this advisory holds up, it will mean that none of the prepaid local property taxes will be deductible from 2018 tax returns.

See more below:

Letter from School Board President William Natbony and VP Scott Silberfein:

The Board of Education has received many emails in response to our communication today concerning the School District's legal inability to issue a warrant relating to 2018-2019 school taxes. We do understand the frustration expressed in these emails. We share your frustration. However, our legal inability to issue a warrant is not the result of inaction or choice, but based on consistent advice and information carefully reviewed, including advice from the District's outside counsel. That advice is consistent with the advice we know other School Districts have received. We are not aware of any School District that is planning to issue a warrant now for 2018-19 school taxes. Our best information and continued received advice is that we cannot issue a warrant for 2018-19 school taxes because the budget process for that budget cycle has not occurred and the budget has not been approved, after proper notice is provided to the community, by community vote as required by law before a warrant can issue.

A number of emails have suggested that other Villages, Municipalities and School Districts are allowing for prepayment. Again, we are not aware of any School District that is issuing a warrant now for 2018-19 school taxes. There are a number of Districts where prepayment of 2017-18 school taxes (where a portion is due in early 2018) is being permitted. Those circumstances involve assessments and warrants that were previously issued and approved for the 2017-18 tax year in accordance with State law. In Scarsdale, we do not have that payment schedule and all 2017-18 school taxes are payable in 2017. To the extent some Villages and Municipalities are allowing for prepayment of some taxes, I note that Villages and Municipalities are not subject to the same budgetary process and procedural requirements before issuing a warrant as New York non-City, public school districts.

Other emails have inquired about prior communications and messages from the Village (not the School District) regarding prepayment. It is the School District's understanding that a prepayment opportunity for school taxes was offered based on the best information available to the Village at the time in order to allow Scarsdale residents time to consider the benefits of prepayment and as much time this week to commence payment. We understand the Village only collected the money to hold and has not deposited any checks. All of this was done with the understanding that the three taxing jurisdictions (County, Village and School District) would ultimately decide if they are legally permitted and wish to move forward with this apparent opportunity based on their independent reviews relative to the Executive Order and the applicable statutory requirements which are different for all three.

Relevant here, the Governor's Executive Order did not suspend any of the legal requirements concerning the budgetary process and community vote applicable to the School District and, in any event, did not specifically authorize prepayment of 2018-19 school taxes. The Executive Order does not allow for the prepayment of school taxes for the 2018-2019 school year (July 1, 2018 through June 30, 2019). Unlike villages, towns and counties, a school district fiscal year runs from July 1st to June 30th. Further, in accordance with New York Law, prior to the collection of taxes, school districts are required to construct a school budget, seek approval of the budget by its voters, and finalize the tax warrant, where applicable, or set the tax levy. Boards of Education will not be considering final approval of those budgets until March and/or April of 2018. Pursuant to New York State Education Law, required taxpayer voter approval of these budgets will not occur until the third Tuesday in May, as fixed by statute. The Executive Order does not modify or suspend any of these Education Law requirements for the adoption of a school budget. Likewise, the Order does not suspend any provision of Article 13 of the Real Property Tax Law which governs the levy of property taxes for most school districts. Before the local assessing jurisdiction issues the tax warrant to collect taxes for 2018-19 school year, the law requires that the school budget be approved by the voters. Accordingly, the Order does not provide any legal authority for school districts to now adopt estimated 2018-2019 budgets and/or set tax levies for the 2018-2019 school year, nor to authorize the collection of taxes corresponding to those levies.

A number of emails from community members have expressed anger, disappointment and some harsh words about the School District's and Board's position. Some community members have gone so far as to accuse the School District and Board of not caring about Scarsdale's residents or to threaten voting "no" on the upcoming bond proposal and 2018-19 budget unless there is a "change of mind" on this issue.

We hope that the community understands that the School District's conclusion has been reached in good faith and that the School District and Board want to do what is legally possible to provide the opportunity to taxpayers to prepay the 2018-19 school taxes. Unfortunately, our advisors, consistent with other opinions and analyses reviewed, continue to conclude and advise that the School District and the Board, as fiduciaries, cannot legally issue a warrant at this time for the 2018-19 school taxes. We will continue to work hard and inquire about creative or alternative options to enable us to issue the warrant.

IRS Advisory on Deductibility of Prepaid Taxes

The New York Times article concerning deductions for prepaid property taxes warns that they may not be permitted by the IRS. 

Even though Governor Cuomo signed an executive order authorizing municipalities to collect prepayments, the IRS could bar filers from making these deductions.

Why? The article says, "In an advisory notice posted to its website on Wednesday, the I.R.S. said that maneuver could work, but only under limited circumstances. To qualify for the deduction, property taxes not only need to be paid in 2017, they must also be assessed in 2017 — meaning that homeowners who prepaid their taxes based on estimated assessments, or who tried to pay several years' worth of taxes at once, will probably be out of luck."

However, the article states, "The I.R.S. guidance is advice to taxpayers and tax preparers, not a legal ruling. And the agency did not define what it means for a tax to be "assessed." Read more here

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