Photo by Grundlepuck.

District officials are “looking into” a claim by two attorneys that building owners may have avoided paying millions in taxes over the past decade.

With the District facing a deficit in the hundreds of millions of dollars in the coming years, it seems like a potential windfall if it would be feasible to go after the “lost” revenue.

In question is a 2001 law, which could be interpreted one of two ways: either taxes must be paid on the full amount of a given loan, or, taxes must be paid on any increase in the size of the loan.

Here is an example from the Washington Post:

One building, on L Street NW, was purchased in 1986 with a $6 million loan, a transaction that was and remains exempt from recordation tax. In 1999, the owners took out a new loan, for $7 million. No recordation tax was collected. In September 2007, the owners of the building refinanced, taking $12 million this time, but the city assessed tax only on the $5 million difference. Under the 2001 law change, [attorney Jeffrey A. Mitchell] alleges, the full $12 million should have been taxed, which would have net an additional $101,500 for the city.

According to the Post’s Mike DeBonis, “the city has only three years after assessing a tax to modify that assessment. If property owners are found to be evading taxes, however, there is no time limitation.”

It seems like it would be challenging to prove in court that property owners intentionally evaded taxes, given the existing interpretation, but it’s possible that the District could target either the largest transactions or the largest developers, and eventually there might be some kind of settlement.

Or, the new interpretation of the law could be applied going forward.

Either way, it seems unlikely that the District’s biggest landlords will end up receiving a large tax bill, but it remains a possibility.