Letters demanding taxes sent in error due to computer system conversion.

The Los Angeles Office of Finance has mailed letters to about 2,000 city residents in the past month, erroneously claiming they owe back business taxes and face civil or criminal penalties if they refuse to pay.

The notices were part of a broader annual mailing designed to capture delinquent taxes from about 13,000 residents.

Antoinette Christovale, who heads the Office of Finance. said the mistakes occurred because the department converted 900,000 taxpayer records to a new computer system in mid-November.

The system generated several thousand incorrect tax bills and staff members have been told to apologize to taxpayers who were inadvertently targeted.

"It's a very small percentage given the magnitude of data that was converted to the new system." Christovale said. "We advise the individuals who received the letters that it may be possible it was an incorrect billing, and we will be getting back to them to resolve the issue."

Century City lawyer Jill Levine Betts received a notice stating that she owed $1,081.85 in taxes dating back to 2002, including $400 in penalties and interest

"I knew something was wrong," said Betts, who contacted the city because a line-item on the tax bill showed that her salary had doubled in a year--a fact that she says is incorrect.

Four years ago, the city embarked on a program to identify as many as 25 percent of businesses in Los Angeles that either are not registered to pay city business taxes or bare underreported what they owe. Christovale said.

The move came after the state Legislature passed Assembly Bill 63, which authorized the Franchise Tax Board to turn over its lists of individuals, partnerships and corporations who claim business expenses on their state tax returns.

In 2002, the department mailed 151,000 letters to businesses that it believed were not paying local business taxes.

Nearly 85 percent of those have stepped forward, agreeing to pay taxes amounting to an additional $23 million in revenue for the city. Many received waivers of interest and penalties for agreeing to pay back taxes.

Since then, the department has mailed three letters advising the remaining businesses that still haven't complied to contact the department.

Christovale said 75 percent of the back taxes collected have been set aside to pay for business tax reform, while the remainder is dedicated to city funds for housing development.

The city of Los Angeles is expected to collect $386 million in business taxes for fiscal 2004-2005, up from $373 million in fiscal 2003-2004.