Cook County Board President Toni Preckwinkle today announced her administration is establishing a new enforcement measure to go after businesses and individuals that avoid paying transfer taxes on real estate transactions by undervaluing the property they sell.
The County’s Department of Revenue will audit real property transfer tax returns filed with the Recorder of Deeds to identify improper exemptions and determine whether individuals undervalue the sale of real estate in order to pay fewer taxes. Real property transfer tax exemptions are designed to give tax breaks on property used for charitable, religious or educational purposes. It also covers property that is part of a Chapter 11 bankruptcy reorganization and real estate transactions where the transfer price is less than $100.
The Real Property Transfer Tax is levied on all real estate sales in Cook County. The tax levy for Real Property Transfers in Cook County is $0.25 per $500 of the transfer price.
“This tax dodge is most commonly used on large commercial real estate deals when sellers claim unwarranted exemptions or misrepresent the value of their property or transfer price. That’s not the way this was designed to work,” President Preckwinkle said. “These tax exemptions are for benevolent organizations or people in financial difficulty. Yet, too many people take advantage of the system to avoid paying their fair share.”
In large real estate transactions, sellers often fail to claim their mortgage payments as part of the total value of the property, claim an exemption and then intentionally neglect to remit the tax on that amount. The audits will reveal discrepancies and require sellers to pay in full. If unwarranted exemptions on the purchase of property are found, the County will require the seller to pay a penalty equal to the amount of the tax owed to the Recorder of Deeds and a $1,000 fine.
“I want to thank Recorder Karen Yarborough for her cooperation in advancing this policy,” President Preckwinkle said. “This is a collaborative effort and her office is critical in ensuring its success.”
The Department of Revenue will invest in additional resources to improve real estate data collection and enhance enforcement efforts. The audits are expected to generate $1 million in 2014 and increased revenue in successive years. The County anticipates roughly $16 million in real property transfer tax revenue in the FY 2014 budget