Written on behalf of Feigenbaum Consulting
As recently reported by the San Francisco Chronicle, an unpaid tax bill can sometimes have unexpected consequences, involving more than just the IRS.
A young couple are now the owners of one of the most exclusive streets in San Francisco. The couple acquired Presidio Terrace, a private street in a gated community full of multi-million dollar homes, for $90,000 at a city-run auction.
The sale was a result of what the Chronicle deemed a “comedy of errors” stemming from $994 in unpaid back taxes, penalties and interest. The couple now owns the street, the adjoining sidewalks, and all “common ground” in the private development, including garden islands, palm trees, and other landscaping. The development has been managed by the Presidio Homeowners Association since 1905.
Unpaid Property Taxes
The owners of all private streets in San Francisco are obligated to pay property taxes for that street. In this case, the Association should have been paying $14 a year. However, according to the Association’s lawyer, the bill was being mailed to the address of an accountant who had not worked for the Association since the 1980’s. As such, the property taxes went unpaid for more than 30 years, resulting in the $994. Two years ago, San Francisco’s tax office put Presidio Terrace up for sale in an online auction, seeking to recover $994 in unpaid back taxes (and penalties and interest).
Since their purchase of the street in 2015, the couple had not taken any major steps, seeking only to obtain title insurance. The residents of Presidio Terrace, who in the past have included Senators, a former mayor, and the House Democratic Leader, did not learn of the sale until they were contacted by a title search company working on behalf of the couple earlier this year. The title search company had inquired whether they had any interest in buying the property back from the couple.
The Association has since petitioned the Board of Supervisors for a hearing in order to rescind the tax sale. A hearing is scheduled for October. The Association has also sued the couple and the city, claiming that the city had an obligation to post a notice notifying residents of the auction but did not do so.
A spokeswoman for the Treasurer-Tax Collector’s office told the Chronicle:
Ninety-nine percent of property owners in San Francisco know what they need to do, and they pay their taxes on time — and they keep their mailing address up to date…there is nothing that our office can do.
This story provides some take-aways for business owners, and highlights the importance of having a corporation’s contact information, particularly the contact information of the corporation’s registered agent and the address of where tax notices are mailed (if different), up to date. Had that been the case here, this unfortunate situation could have been avoided.
What is a Registered Agent?
State laws require corporations, LLC’s, and LLP’s to designate and maintain a registered agent in any state in which the company does business. A registered agent is an individual that is designated to receive important notices and to be served when the corporation or LLC is involved in legal action. The registered agent’s address will be where annual reports, tax notices for property and other taxes, and similar other information is sent.
The registered agent can be a member of the company, or a third party such as a lawyer or accountant. The agent is responsible for receiving critically important tax and legal documents. The agent’s name and address must be included in the articles of incorporation and must updated if that information changes. Failure to correctly maintain a registered agent or failing to maintain updated contact information for that agent can have significant consequences for a company, including having the Secretary of State administratively dissolve the entity, losing your certificate of good standing, or having a default judgment entered against the entity.
In this case, a failure to maintain updated contact information for the Association resulted in the Association not receiving notice of its tax obligations, and led to the sale of the street in order to satisfy the backtaxes owing.
Contact the knowledgeable tax lawyers at Feigenbaum Law for information on how to avoid pitfalls and shield your business from potential liabilities. We provide full tax services to clients in the U.S., Canada, and around the world. To make an appointment, contact us online, or call our office toll free at (877) 275-4792.