Home Banking & Finance Shrub Oak school developer settled with state for $4.3M over business, tax...

Shrub Oak school developer settled with state for $4.3M over business, tax practices

A business owner who agreed to a $4.3 million settlement with the state over tax and business practices wants to build Shrub Oak International School for autistic youths with county IDA financial assistance at this former drug treatment center in Yorktown.

A massive, vacant building in Yorktown that once housed a Catholic seminary and a drug treatment center could become an expensive, private boarding school for autistic youths.

Michael C. Koffler, CEO of K3 Learning Inc., is asking the Westchester County Industrial Development Agency for more than $52.5 million in financial assistance to build Shrub Oak International School.

K3 is a Manhattan-based, for-profit holding company for specialty schools and services that has a recent record of regulatory troubles, including overpaid state reimbursements and underpaid taxes.

Koffler controls 127 acres at 3151 Stoney St. in the northern Westchester hamlet of Shrub Oak, where the Jesuits built Loyola Seminary in 1953 and where Phoenix House Academy treated teens for substance abuse until June 2015.

He has applied for $50 million in taxable industrial development revenue bonds, $1.8 million in sales tax exemptions and a $650,000 mortgage tax exemption. He is negotiating for a payment in lieu of taxes agreement.

Koffler chose Shrub Oak after considering locations in New Jersey and Connecticut. He needs the government financial assistance, according to his IDA application, to offset, in part, the financial advantages of the out-of-state sites.

There is great demand for such a school, he said in the application. Diagnoses of autism have increased threefold in the past decade, yet the capacity to serve this population has not increased much.

The dominating feature of the Stoney Street property is a 270,000-square-foot main building. The school plans to renovate the 1953 structure to include a dormitory, classrooms, gymnasium, auditorium, kitchen, dining room and offices.

An indoor swimming pool, livestock barn, equestrian barn and a helicopter pad will be built. Six houses and several outbuildings will be renovated.

The school’s website depicts a place where a customized curriculum, athletics and outdoor activities, technology and agricultural programs will prepare students for successful lives.

The annual payroll when the school is fully operational will be more than $58.8 million, or an average of $100,750 for 584 employees.

About 319 students will live there, from ages 14 to 22 or older. Tuition for boarders will be $254,000 a year, according to a statement by Koffler at an IDA meeting, or $300,000 according to the school’s website. Yearly tuition for day students will be $124,000. Shrub Oak School advises parents on its website to check if their local school district will reimburse them for the school’s services.

Most of the students will come from the New York region but the school also expects to enroll students from elsewhere in the U.S. and from other countries.

Koffler has 32 years of experience in building, managing and operating more than 60 private schools. He has served on several nonprofit boards, and in 2005 he endowed a professorship in autism at Pace University’s School of Education.

Two IDA officials asked him at a May 18 meeting about a state audit of his schools. According to meeting minutes, he responded that the state comptroller had found an accounting error and a fine had been paid to the state attorney general’s office.

Koffler signed a settlement last October that describes improper reimbursement practices and tax claims, based on audits and investigations by the state attorney general, comptroller and Department of Taxation and Finance.

Koffler and Sunshine Development School Inc. “submitted false reports” to the state Education Department, the settlement says, to claim reimbursements to which they were not entitled.

For example, Koffler created a complicated lease arrangement to pay rents, using a pass-through entity that performed no services but almost doubled the rents. The state paid more than $3.5 million to the entity, Bridan Realty III LLC, named for his sons Brian and Daniel.

The payments went into a bank account controlled by Koffler. Checks were issued for as much as $116,000 to Koffler, $2,500 a month to his sons, and for credit card payments, boat maintenance and Brian Koffler’s law school.

Koffler also reported business losses on his personal income tax return, the settlement says, and failed to report as income personal expenses the company paid on his behalf.

In 2006, his company reported a $12.3 million cash loan from Koffler, enabling him to claim a negative adjusted gross income. The loan was not fully substantiated, according to the settlement, and there was no “reason to believe that Michael Koffler had $12 million on hand to loan to his business.”

His companies deducted $1.6 million for personal expenses such as rental of a New York City apartment, payments to department and specialty stores and payments for a vacation home in Westhampton Beach.

The settlement requires Koffler and his wife, Lori, his sons Daniel and Brian and Sunshine Development School to pay the state $4.3 million.

The Kofflers disagree with many of the findings, the agreement says, and they deny violations of law but wish to settle the matter.

As of July, the Department of Taxation and Finance named Koffler and his wife to its list of the top 250 delinquent taxpayers. They owed nearly $1.6 million in personal income taxes, based on a lien filed in February that does not include subsequent payments or accrued penalties and interest.

The county IDA gave preliminary approval to the bond financing at its May meeting. The bond obligations would be paid by the company and they would not be considered a government debt. A final resolution is scheduled for consideration at the IDA’s September meeting.

Shrub Oak says classes will begin in fall 2018.



  1. The property once housed Baptist Bible College East. Some of the church planting pioneers of the New England area. Men and women from all over America came with a vision to plant churches in what was once the great revival area of our nation. The school turned out many faithful hard working Pastors, Teachers, and Missionaries. The school has since moved to a campus in Boston and has been renamed Boston Baptist College.


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