United States: Florida: Sun, Fun, And Sand Or Back Taxes, Penalties, And Interest?

Do you own residential property in Florida? Do you also own residential property in another state? Some Florida counties have been cracking down on Florida Homestead exemption fraud, and you might be surprised to find you owe tens of thousands of dollars in back taxes, penalties, and interest.

New Tactic for Combating Florida Homestead Exemption Fraud

Imagine that you own one home in Cuyahoga County, Ohio, and another in Sarasota County, Florida. Although Ohio was at one time your principal residence, for the past seven years you have considered your Florida home to be your principal residence because you live in it eight months out of the year, have a Florida driver's license, are registered to vote in Florida, maintain bank accounts in Florida, and have even filed an affidavit of domicile in Florida. As such, you claimed the Florida homestead exemption on your Florida home in your Florida filings, and for your Ohio state tax filings, filed as a "nonresident," listing your Florida home as your principal address. However, during the seven-year period your principal residence has been in Florida, the real estate tax bills on your Ohio home continued to provide you with an Owner Occupancy Credit (formerly known as the 2½% Rollback Credit). The Owner Occupancy Credit is a form of homestead or residency-based tax credit that you, in all likelihood, obtained by indicating in a form you executed when you bought your Ohio home that it would be your principal residence. This Owner Occupancy Credit continues to be applied to real estate taxes on your Ohio home until you notify the Ohio taxing authority that your Ohio home is no longer your principal residence.

After seven years of believing you were dutifully paying taxes to Florida and, not realizing you continued to receive a form of residency-based tax credit in Ohio, you receive a notice from the Sarasota County Property Appraiser Office telling you that you owe them $24,436 for back taxes, penalties, and interest because your receipt of the Owner Occupancy Credit in Ohio precluded you from receiving the Florida homestead exemption. You and many other property owners have been faced with or may face this problematic situation.

Historically, property appraiser offices combated Florida homestead exemption fraud through tips from residents that were later investigated by staff at the property appraiser offices themselves. However, the property appraiser offices in Sarasota County, Duval County, and Pinellas County recently hired a firm to crack down on Florida homestead exemption fraud. The firm does not receive an up-front fee and instead is paid a 30 percent commission on any back taxes, penalties, and interest it can recover – giving it a lucrative incentive to find any technical violations.

The Florida Homestead Exemption

The Florida homestead exemption generally permits a person to receive an exemption from taxes of up to $50,000 on the assessed valuation of property in Florida that is the person's "permanent residence." However, under Section 196.031(5), Florida Statutes, a person who is "receiving or claiming" an ad valorem tax exemption or tax credit in another state where "permanent residency" is required as a basis for such exemption or credit is not entitled to the Florida homestead exemption – regardless of whether the person is "receiving or claiming" such other state's exemption or credit knowingly and willfully, or purely by the person's own mistake. Without disputing whether Florida is your homestead, the Sarasota County Property Appraiser Office takes the position that the Owner Occupancy Credit in Ohio is a residency-based exemption and that a person receiving or claiming the Owner Occupancy Credit is not entitled to the Florida homestead exemption – regardless of whether such person knew the Owner Occupancy Credit was a residency-based credit or paid back taxes owed to Ohio in an attempt to remedy the mistake.

Although receiving or claiming a residency-based property tax exemption or credit in another state does not necessarily preclude a person from receiving the Florida homestead exemption, it may be a factor considered in determining whether Florida is the individual's "permanent residence" – a factor that would likely result in a finding that such person is not entitled to the Florida homestead exemption.

Impact of Claim That You Were Improperly Granted the Florida Homestead Exemption

Upon determination by the Florida property appraiser office that for any year or years within the prior 10 years a person who was not entitled to the Florida homestead exemption was improperly granted an exemption from ad valorem taxes, it will send a Notice of Intent to record a Notice of Tax Lien for Homestead Exemption and/or Limitation Exclusion in the public record. Further, such person shall be liable for the unpaid taxes improperly exempted by claiming the Florida homestead exemption plus a penalty of 50 percent of the unpaid taxes for each year and 15 percent interest per annum. Unless a person can prove that the exemption or credit in the other state was improperly granted as a result of a "mistake or omission by the property appraiser," the person has 30 days to pay the outstanding amount of back taxes, penalties, and interest in full or the Florida property appraiser office must record the lien. Notably, the Sarasota County Property Appraiser Office takes the position that it has no discretion in the amount to be paid or whether it should record the lien, and that there is no administrative process for appealing the matter. Therefore, one of the few options available to challenge such a claim for back taxes, penalties, and interest would be to file suit in the applicable Circuit Court in Florida – with little guidance on the likelihood of success.

Recommendations

If you own residential property in Florida and another state, you should contact your attorney and accountant to determine whether you might be at risk for a claim that you were improperly granted the Florida homestead exemption, your options for addressing such a claim, and how to best position yourself to avoid such a claim in the future. Even if you have not received a Notice of Intent to record a Notice of Tax Lien for Homestead Exemption and/or Limitation Exclusion in the public record, you still could receive one in the near term, and having knowledge of this fact may better position you to address such a notice if and when it comes. As such, you should procure and review your tax filings and other related documents from the previous 10 years for Florida and any other state in which you own residential property. To better ensure that you are able to receive the Florida homestead exemption for the tax year 2016 and subsequent years, you should confirm the material needed and deadline for claiming the exemption for tax year 2016, and, if such date has passed, whether you qualify to make a late filing for the exemption. You should also determine whether you are currently receiving any residency-based credit or exemption in a state other than Florida. If you are and you no longer have your principal residence in that state, you should take the necessary steps to terminate the residency-based credit or exemption. You might find that this is complicated by the fact that the other state does not have a formal application or notice to establish that you no longer qualify for a residency-based tax exemption or credit and that the matter must be addressed on a case-by-case basis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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