The Erroneous Homestead Exemption!
Here is something that might cost you some out of pocket dollars if you do not take advantage of the AMENSTY provisions of SB 0041, new legislation, which went into effect just recently.
What's a homestead exemption?
The Illinois Constitution allows homestead exemptions for certain residential property. Preferential treatment in the calculation of a real estate tax is allowed by law to certain groups of people who qualify. The property generally must be occupied as a principal residence on January 1st of the real estate tax year. The most commonly used is the "homeowner's" exemption (others of note are allowed for homestead improvements, Senior Citizens, Senior Freezes, Disabled Veterans.)
Why the new legislation?
Individuals with homestead exemptions erroneously applied to their properties are a cost to government and are inequitable to all other taxpayers. An alarming number of homeowners have been taking advantage of homestead exemptions (intentionally or unknowingly) that do not qualify. This new legislation provides for a recovery of lost government revenues with interest and penalties. As an additional enforcement mechanism in Cook County, it also provides that a lien can be recorded against your property for non-payment of a reimbursement.
What is an erroneous homestead exemption?
Erroneous homestead exemption means a homestead exemption that was granted for real property in a taxable year if the property was not eligible for that exemption in that taxable year.
What are some examples of an erroneous homestead exemption?
By law you can only declare one principal residence. If you own more than one residence and you have a homeowner's exemption applied to each location, one would be considered erroneously applied. The new legislation would consider this one (1) violation despite the number of years the erroneous exemption existed for that property.
Say you buy a second residence and the former owner, a senior citizen, had a homeowner's and a senior freeze exemption applied to the home. After you purchase this second residence, exemptions are erroneous applied yearly thereafter. The new legislation would consider this as two (2) violations of the homestead exemption law.
Multiple properties with excessive erroneous homestead exemptions could count for three or more violations and that determination could provide for a penalty in addition to the repayment of the principle arrearage, plus interest.
What are the penalties and interest provisions?
If the property owner received one (1) or two (2) erroneous exemptions during any of the three (3) assessment years immediately prior to the assessment year a notice of intent to lien the property is served, then the arrearages of taxes that might have been assessed for that property, plus 10% interest per annum, will be charged against the property by the county treasurer.
If the property owner received three (3) or more erroneous exemptions during any of the six (6) previous assessment years immediately prior to the assessment year a notice of intent to lien the property is served, then the arrearages of taxes that might have been assessed for that property, plus a penalty of 50% of the total amount of the unpaid taxes for each year for that property and 10% interest per annum, will be charged against the property by the county treasurer.
What are the amnesty provisions?
The amnesty period will end December 31, 2013. If, during the amnesty period, the taxpayer pays the entire arrearage of taxes due for the tax years prior to 2013, the county clerk will abate and not seek to collect any interest or penalties that may be applicable and shall not seek civil or criminal prosecution for any taxpayer for the tax years prior to 2013. Payment has to be made before the December 31, 2013 deadline.
Unfortunately, a taxpayer who has claimed three (3) or more homestead exemptions in error is not allowed to be eligible for the amnesty period.
Due process notices are required of the chief county assessment officer. In each assessment year a list of each homestead exemption applied to a property will be published so it is anticipated that a taxpayer will have knowledge of what is being exempted. There is a "grace period" of sixty (60) days available so a property owner can notify the chief county assessment officer of the erroneous application. This does not waive the payment of the principal or interest due but the property owner will not be liable for the penalties provided by the new act (50%).
If taxpayers do not avail themselves of self-reporting their erroneous exemption and the chief assessing officer sends notice of a lien, there are provisions for appeal. Payments are required within thirty (30) days upon receipt of the notice or return a form that will be provided requesting an appeal. An assessment officer will provide a hearing within ninety (90) days for a property owner to present evidence contesting the erroneous exemption. Appeals of the hearing officers decision go directly to the Circuit Court on Administrative Review.
A new law was enacted to recover lost revenue for homestead exemptions erroneously applied. There are numerous circumstances which give rise to erroneous exemptions and the chief county assessing officials now have some teeth behind efforts to correct assessments if the property owner is taking advantage of paying less real estate tax, whether knowingly or not.
It remains to be seen how the enforcement mechanism will work but suffice it to say we no longer live in a world scribing assessment information on paper and the assessors' offices computerization will assist them in locating multiplicity.
Our firm specializes in the real estate tax assessment process and we foresee issues developing for property owners. Pay particular attention to what exemptions are being applied to your properties. Consider whether self-reporting will benefit your position. Let us help you if the need arises.