Tax Appeal Policy May Be Against State Law : Assessments: Officials question county requirement that challenges be filed with the assessor’s office rather than the clerk of an independent board.

Orange County’s practice of having homeowners and businesses appeal their property tax bills to the same agency that assessed their properties may be a violation of state law, state officials said Wednesday.

The county--which recently bungled at least 170 appeals--appears to be the only county in California that requires property owners to lodge complaints about their assessments with the county assessor instead of the clerk of an independent appeals board, according to state tax officials.

The situation is similar to suing a doctor and filing the lawsuit with the doctor instead of a court, said Charles Knudsen, the principle appraiser in the assessment standards division of the State Board of Equalization. “It just seems as a matter of common sense that if you’re going to appeal something, you would appeal it to the neutral party and not the assessor,” Knudsen said.

County Counsel Terry C. Andrus said Wednesday that the county attempts to avoid any legal problem by having employees in the assessor’s office deputized as appeals board clerks. Nonetheless, he said, the initial handling and processing of the appeals is done by the assessor’s office.

The procedure has come under scrutiny recently because the county mishandled more than 170 assessment appeals by allowing a statutory two-year review period to expire. The bureaucratic snafu means that the county must accept the assessments offered by residents or business owners and could cost the county millions of dollars in lost tax revenue.

James Williams, an attorney for the State Board of Equalization, said Orange County officials are skirting the intent of the law with their unusual filing practice.

“There is no basis in law for filing with the assessor. The filing has to be with the county board,” said Williams, who also provides legal advice to assessment appeal boards.

Williams said the assessor and the taxpayer are opponents in the appeal process. Having assessor employees, who are deputized clerks, receive the appeal files “gives the impression that (the clerk of board) is not independent. It gives the taxpayers a bad taste in their mouths. We would take the opposite point of view.”

Phyllis A. Henderson, the county’s assessment appeals board clerk, said the arrangement has created some tracking problems in her department because she has to rely on the assessor to transfer original files to her.

“It would obviously be better if we received them immediately,” Henderson said. “It would be better for us. We would know the number of appeals and we would have control and responsibility for the files.”

Orange County Assessor Bradley L. Jacobs has been unavailable for comment this week and has directed his staff not to discuss the appeal mishap.

The mistake has outraged members of the Board of Supervisors and spurred an internal investigation of the entire process.

Meanwhile, fallout from the appeal blunder continued to spread Wednesday. County sources said some supervisors are investigating whether they can revoke a recently approved raise for Jacobs, who is an elected official and does not report to the board.

The appeal problem came to light when county officials realized that they had lost an appeal by the Bank of America because the two-year deadline had expired before a hearing was held. As a result, the county was forced to accept Bank of America’s estimate of the value of its property--a figure that was more than $100 million below the assessor’s value.

County officials said the difference in that case could cost the county as much as $3 million over three years.

Following that incident, county officials conducted a review of hundreds of other cases and discovered that the county bungled 178 property assessment appeal cases by allowing deadlines to lapse. Additional millions of dollars in tax revenue could be lost as a result of those cases, county officials said.

Ernie Schneider, the county administrative officer, said he is still trying to determine the magnitude of the problem, including the exact dollar amount and number of cases, and find out who is responsible.

“We are in process of examining the entire procedure,” he said. “There needs to be one, centralized focal point for this entire process. We’ll be examining what other counties are doing and taking a look at the state statutes.”

County officials have leveled blame at Henderson and Jacobs. But neither has accepted responsibility.

Henderson said Wednesday that her office cannot find the original files for the 178 cases that have passed the deadline. She said she does not know whether the tax assessor ever transferred the cases to her office, or whether her office lost them. There is no process for tracking those files from office to office, she said.

Henderson said the problem might not have occurred had the county followed the procedure of most, if not all, other counties in the state. That procedure requires that property owners file their appeals with the appeals board clerk, not the assessor.

Mary Aileen Matheis, a Newport Beach attorney who serves on one of the appeals boards, estimated that her panel reduced assessments on about 60% of all commercial parcels that were reviewed during hearings.

Many other parcels were reduced in value when the assessor’s office reached agreements with property owners, eliminating the need for appeals hearings.

Matheis said the boards had granted many assessment adjustments because of the faltering real estate market, which caused reductions in property values throughout the county.

County officials calculate property assessment based on the “historic” value of each parcel, Matheis said. In most cases, the county increases the assessed value of parcels by 2% annually.

Times correspondent Shelby Grad contributed to this report.