CNYC | Crediting the Abatement

Article Archive

Tax Issues

Published: Summer 1997

sCREDITING THE ABATEMENT

Accountant Mark B. Shernicoff of the Manhattan-based firm of Zucker & Shernicoff is treasurer of CNYC. He makes the following important suggestions for distribution of the abatement:

The law provides that, in the case of cooperatives, the "abatement... shall be credited... against the tax due on the property as a whole. The reduction in the real property taxes received thereby shall be credited by the cooperative apartment corporation against the amount of such taxes attributable to eligible dwelling units [emphasis added] at the time of receipt." An eligible dwelling unit is one not owned by the sponsor, holder of unsold shares or other person who owns more than three apartments in the cooperative or condominium on the "tax status date", which is the January 5th preceding the beginning of the tax year. The language of the law makes clear that the "cooperative apartment corporation" must distribute the credit to the owners of eligible units and cannot retain the funds for any other purpose.

The recommended method of returning the abatement to the shareholders is to credit that amount on the maintenance bills for each eligible apartment. This can be done by crediting the full amount on the first maintenance bill following receipt of the breakdown from the Department of Finance, or crediting one-twelfth of the annual abatement on each monthly bill (possibly beginning with a double credit in September and October to catch up for the months before the breakdown is available). Distributing the full abatement by means of a check to each qualifying shareholder might violate the restrictions on distributions in Section 216 of the Internal Revenue Code, which might cause the cooperative to be disqualified as a "cooperative housing corporation" within the meaning of Section 216. Therefore this method of distribution is strongly discouraged.

Because, as indicated above, eligibility is determined on the "tax status date", there are some who believe that the abatement should be returned to the individual who owned the unit on that date. However, there is nothing in the law to indicate that this was the Legislature's intent. Rather such a procedure is contrary to the language of the law, which is that "the abatement... shall be credited... to eligible dwelling units at the time of receipt." Further, such a method would be inequitable, as it could give the credit to a former owner and not to the shareholder who is actually paying the tax as a part of the monthly carrying charges.

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