MR. KOJO NNAMDISay the words recordation taxes and you're likely to get a lot of blank stares. But how about if I say someone owes you $100 million, would I have your attention now? Well, that money isn't exactly owed to you, it's allegedly owed to the district government. But you might end up owing it, since if the district government doesn't collect it from someone else, you as a taxpayer may end up footing the bill. Either way, we've got Mike DeBonis on the phone with us.

MR. KOJO NNAMDIHe's a reporter with the Washington Post and frequent guest on "The Politics Hour," to explain it all. Mike, thank you so much for joining us.

MR. MIKE DEBONISHey, thanks, Kojo.

NNAMDIIn a front page article today, you explore whether some commercial property owners may be intentionally dodging taxes to the tune of over $100 million over the last decade. Can you please explain?

DEBONISI can. It may take a second, but it's pretty simple. There is a gentleman, a couple gentlemen who are alleging that the city over the course of a decade misinterpreted a provisional law that was passed in 2001, and in so doing did not apply what's called the deed recordation tax properly. What this tax is, is, you know, any time that you record a deed, you pay us a small percentage on the consideration of that transfer, and you also pay that on certain mortgages.

DEBONISAnd in 2001, the city eliminated a certain exemption in a whole class of transactions that before wouldn't have been subject to tax, now were taxed, except the city didn't correctly identify that. Now, there is some dispute over whether this particular lawyer's interpretation is correct. But there is documentation from the tax office itself that shows that they shared his interpretation, at least initially after passing the law.

NNAMDIWell, as you mentioned, this issue was not discovered by a government audit. It was brought to the attention of D.C. authorities a couple of lawyers and one former member of the Anthony Williams administration, correct?

DEBONISYes. Both -- Doug Patton is a name that a lot people in City Hall know just because he's a very, you know, he is a former deputy mayor. He's a pretty well-known lobbyist and attorney. But he's basically been a door opener for a fellow named Jeffrey Mitchell, who's a real estate attorney and a tax lawyer, who says that he became familiar with this when he was at a different firm where he was shown deals that were specifically set up to evade the imposition of this tax.

NNAMDIAnd at the center of this dispute as you mentioned is a regulation that changed in the year 2001. Could you go over again exactly what did that regulation say, and how it's my understanding that that change in the regulation allowed the city to tax refinanced commercial mortgages...

DEBONISRight.

NNAMDI...for the first time. But the dispute, if there is one, is exactly how to implement that, or how to do the math.

DEBONISRight. So say you own a really big downtown office building, and you buy it for $50 million, which is not unheard of for some downtown real estate. And you take out a mortgage to do that. If you did that before 2001, and actually to this day when you make the initial -- take out that initial mortgage, you don't pay any tax on it, because you're also paying tax on the deed transfer itself. Now, when you refinance though, there used to be an exemption for that.

DEBONISNow, starting in 2001, there was no longer an exemption, and the -- the crux of the dispute is whether now that you've -- you have to pay tax on the refinance, do you pay tax on just the -- any additional amount of equity that you take out of your property? Say that you took that $50 million building and then in 2007 you refinanced for $70 million. Do you pay the tax on the 20 million, or do you pay the tax on the full 70 million, because that had never before been taxed?

DEBONISUnder a reading of the plain language of the statute certainly that I reviewed, it would seem to indicate that the full 70 million should be taxed. But certainly there are real estate lawyers who disagree with that interpretation. The question is, what will be -- what was city policy, what is city policy, and what should city policy be.

NNAMDIWell, as you said, there are real estate lawyers who disagree with that interpretation. On the other hand, there is the suspicion that the owners of buildings that were -- these commercial properties that were seeking this refinancing, deliberately interpret it -- deliberately interpreted it so that they would pay the lower amount. And I guess that's what...

DEBONISYes.

NNAMDI…that's what's going to have to be resolved. But it's my understanding that you went through public records at the tax office at yourself pulling out a calculator and doing some math. What did you find?

DEBONISWell, you find two things. You find -- one, you find examples of what Mr. Mitchell, the attorney calls and evasion method whereby property transactions were made in documents that weren't required to be recorded with the recorder of deeds, and thus examined for whether tax was due. And instead, they recorded a different kind of document that would have been claimed to be exempt from the tax even though that there would have been, you know, considering it is a refinancing, under the law refinancings you would have to pay tax on.

DEBONISSo that's one method where there is an active evasion on the part of the land -- you know, the landlord. There is also evidence, and I've seen documents that seemed to indicate that they may have been the case. I've also seen documents where there was no evasion taken, and where the city just did not apply the tax on the full equity of the refinancing. They just applied the tax on the increment. And that is sort of the crux of the issue.

DEBONISAnd that, you know, that may complicate issues to try and go back and recover some of this money down the road.

NNAMDIWhat, if anything, have we heard from Natwar Gandhi, the chief financial officer of the District of Columbia about this?

DEBONISI have not heard anything directly from him. His spokesperson said that they are looking into this. The lawyers from the chief financial officer's office, and also from the Office of the Attorney General, are both examining this issue, and there's sort of a catch-22 here, which is they could say, look, we have this wrong, you know. We were interpreting this wrong for the last ten years, or we could say, oh, we were interpreting it right for the last ten years. If it's the latter, if they were doing this right all along, you're foregoing a lot of future revenue.

DEBONISThere's a lot of money that the city could collect in the future. But if you say you've been doing it wrong for the past ten years, then you have to ask why was it being done wrong. Especially considering there are internal documents showing that they knew that this should have been the policy as far back as 2001.

NNAMDIWasn't Nat Gandhi, the head of the office of tax and revenue between the years 1997 and 2000 when these regulations were being written, and after that he became CFO? He should be, I guess some would say placidly clear about it, shouldn't he?

DEBONISYou would think so. Well, that -- that is a question some people are starting to ask. It's, you know, what did you know about the, you know, was there any discussion of this, why -- was there a change of policy, how far up the ladder did this go, and to this point, you know, Natwar Gandhi himself has kept arm's length. He never met with the gentlemen who are claiming that there is a problem here. The people in the tax and revenue office and in Gandhi's office have been fairly suspicious of these guys because they wanted to do this for a profit. I mean...

NNAMDIWell, see, that -- I have a question about that. Because...

DEBONISSure.

NNAMDI...it seems to me that according to what I read that you were saying, these guys offered to do the audit for free for the city, asking that they only be compensated as whistleblowers based on any cash collected. According to a letter on May 18 that the city sent to them, that they would get paid between 1.5 million to $2.5 million to conduct the audit if they donate any compensation that they get to non-profit organizations.

NNAMDIWell, it does seem to me that if you're selling -- if you're telling the city how to recover $100 million, why should you be forced to donate your -- the money you get to non-profit organizations?

DEBONISThat's a great question.

NNAMDIOr did I get it wrong?

DEBONISWhat they're -- they're responding to the concerns from the office from the chief financial officers that they are...

NNAMDII can't hear you, Mike.

DEBONIS...what they're doing that they're only interested in the profit, and that's why they're coming up with this theory. I mean, what they've represented to me is that, listen, at this point we're not really interested in making any money on this anymore, but we do want to make sure that the city understands what's going on, and we recoup what's able to be recouped. You know, they basically said to me at this point, knowing what we know, we don't even know if it's even that good of business opportunity anymore.

NNAMDIOh, I see what you're saying. We got an e-mail from Jackie in D.C. who says, "The thing that interested and perplexed me most about the possibly undercollected commercial property taxes is the apparent resistance to the notion expressed by Mr. Gandhi's office. If they start with that attitude, how likely are they to fully pursue the inquiry? Tell them this is not an area where egos should prevail. We regular DC folk, residential tax payers, demand that this office pursue this to the fullest."

DEBONISThat's an excellent point. In the letter that these attorneys have sent to Gandhi, they make the point that, you know, listen, we're not convinced that you guys are the best people to be looking into this. I do want to make one point which is that often the government is approached by lots of people who say listen, we'll come in and do an audit, and, you know, whatever we get we'll just take a cut and you can have the rest.

DEBONISA lot of times those things don't pan out and a lot of government officials are rightfully skeptical of those deals. I think what sets this one apart is that there is a fairly, you know, interesting legal analysis here that seems to at least a few people to have some merit to it. So, you know, it's been sort of painted that these guys are, you know, up to no good. I, you know, I think they've gone some way to addressing that concern.

NNAMDIJust a few weeks ago on this show we were told that commercial real estate business in Washington D.C. is booming. Is that your understanding as well?

DEBONISCertainly. You know, the downtown office market has, you know, leasing in the downtown office market has never really gone, you know, abated, even during the worst of the recession. The downtown office leasing market remains strong. Some of these big transactions, the sales, certainly did slow down, and that's where you see these deed recordation fees, these huge deed recordation fees which could be hundreds of thousands of dollars per transaction.

DEBONISAnother thing that's interesting to note about the derecordation tax is that a portion of that is devoted specifically in city lots affordable housing. And right now today I'm at the Wilson Building, and they're talking about getting more money to affordable housing, and this potentially could have put hundreds of thousands, if not millions of dollars into affordable housing specifically over the last ten years. So I think that's one question that's gonna be asked.

NNAMDIIt's my understanding that the CFO's office a few weeks ago revised its estimated projections of commercial real estate revenue. This issue doesn't have anything to with that, does it?

DEBONISI don't know. I don't think that the CFO's office was aware in particular of the fact that they may have not been correctly collecting these deed recordation taxes, and I don't think that -- I certainly don't think that they would have worked that into their upgraded estimates. I think that's just more a reflection of the strength of the market, the assessments, and just the recovering economy in general.

NNAMDIWell, isn't this a lot more fun than covering fully-loaded SUVs and all kinds of appointments in the mayoral administration?

DEBONISIt's a different kind of fun, Kojo.

NNAMDIMike DeBonis is a reporter with the Washington Post and a frequent guest on "The Politics Hour." Mike, thank you so much for joining us.

DEBONISThanks. I'll come back anytime. Thank you.

NNAMDIAnd thank you all for listening. I'm Kojo Nnamdi.