“Bubbles have quite a few things in common, but housing bubbles have a spectacular thing in common, and that is every one of them is considered unique and different.” - Jeremy Grantham, co-founder of GranthamMayo van Otterloo , a Boston based asset management firm
On February 14, 2014 the National Association of Home Builders (NAHB) announced “U.S. home builder confidence suffered its largest one-month drop ever in February, hit by this winter’s relentlessly severe weather and concerns about the costs of labor and building lots.”
The NAHB stated that builder confidence dropped 10 points between January and February, from 56 to 46, the largest drop since the NAHB/Wells Fargo Housing Market Index Survey began in 1985. (*) Readings below 50 mean more builders view market conditions as poor than favorable.
The source for the data in the chart below is the survey which compares February and January readings in geographical regions across the United States.
Greater Phoenix Housing Trends
The weakening trend in demand in Metropolitan Phoenix, which obviously is not attributable to bad weather, is disconcerting. In fact, the median sales price of a home decreased from $187,840 to $180,000 between December 30, 2013 and February 15, 2014.
Bubble Or Burst?
In summary, it is extraordinarily difficult to project demand and pricing trends in the Metro Phoenix single family housing market during the remaining 10 months of 2014. The local economy remains saddled with a high unemployment rate, anemic population growth and growing consumer debt.
It is my opinion that the Phoenix housing bubble is about to burst in 2014.
By Gary Ringel, CGREA
(*) The source for the statistics in the chart is the NAHB/Wells Fargo Housing Market Index (HMI) which is based on a monthly survey of members belonging to the National Association of Home Builders. It is designed to measure sentiment for the U.S. single-family housing market. The Survey asks the NAHB’s 140,000-plus members to rate market conditions for current new home sales and sales expectations in the next six months. It also asks builders to rate traffic of prospective buyers for new homes. The HMI is a weighted average of separate diffusion indexes for these three series. Its reading can range between 0 and 100; a reading over 50 indicates that more builders view sales conditions as good compared with those who view them as poor.
Posted on by admin
We continue with more tips for the first-time deposition testifier. Read Part I here.
More Easy Questions – You will be asked some more really easy questions related to such topics as the name of your employer, and a bit about your work history including your current position. You may also be asked whether you are experiencing any health issues or taking medication which might impair your ability to testify.
Basic Instructions – The questioning attorney will then give you some basic rules to follow regarding the way you answer questions. For example, the attorney will tell you not to give an answer by the nodding of your head. This is because it is difficult to record a nod of the head in the court reporter’s transcription.
The attorney will also tell you not to answer until he or she is through asking the question. This is because the court reporter cannot record two conversations going on at the same time. The attorney might tell you that if you don’t know the answer to a question, simply say so and not guess. The attorney will also tell you that if you have to take a rest room break, you may ask for it at any time.
Answering the not so easy questions – You are starting to get the feeling that the attorney is not so bad after all. And, that this deposition talk isn’t as tough as you thought it was going to be. However, from this point on you might start to sense that the attorney asking the questions isn’t as nice as they were portraying themselves to be.
This is the part of the deposition when you are allowed to start sweating; and the part where the questioning attorney is going to pepper you with questions he or she has written out before you ever came to the deposition room. You might now be asked to indicate those persons with whom you talked before your deposition, the time length of the conversations, and what you talked about. If you are testifying as an expert you will likely be asked to indicate when you were first contacted on the matter at hand and to state what you were asked to do. You may also be asked to state the amount of time you spent on the case and the fees you charged.
The attorney sitting next to you – on your side, is going to give you some further instructions, most likely before you ever start your deposition.
These instructions might include the following:
- Answer with a simple “yes” or “no” – don’t offer additional comment until you are asked.
- If you don’t remember, don’t guess. Say you don’t remember.
- If the questioning attorney tries to upset you, don’t get angry. Stay composed.
- If the attorney working on your side offers an objection to a particular question asked of you, don’t give an answer while the objection is being made. Sometimes the objection is good when you are asked a really hard question because it gives you a few extra moments to formulate your answer.
The tips I’ve mentioned are not all inclusive but just might take a bit of stress out of you the first time you have to testify at a deposition.
By Don Bays, CPA/ABV, CVA, CFFPosted on February 18 2014 by admin
If you are going to be testifying on a litigation matter for the first time, say at a deposition, and you have a pulse, you are probably experiencing a large amount of stress. Here are a few tips that may alleviate some of that stress and make the going a little easier for you. The tips are for persons designated as testifying experts, but many will be applicable to just about anyone giving testimony for the first time at a deposition.
Planning – If you will be accompanied by an attorney at your deposition, it is a good idea to meet with the attorney beforehand and discuss some likely questions you will be asked at the deposition. If you have prepared notes or schedules in support of your testimony, make sure you study them before you testify. If you bring these items with you to the deposition and pull them out of a folder as you are being asked questions, count on the questioning attorney to want to make copies of your documents.
Location – The deposition is likely going to take place in a conference room at the office of the attorney requesting your testimony. No judge will be present. I have found that appearing at the deposition conference room several minutes before the start of my deposition puts me a little more at ease as I survey my surroundings and the proposed seating arrangement.
Typical Deposition Room Seating – You will be seated on either side of the end of the conference room table, assuming it is of a rectangular form. The court reporter, who will be transcribing your every word – and anyone else’s who speaks during your deposition, will sit at the end of the conference room table. The court reporter will be between you and the questioning attorney who will be sitting directly across from you. Your client’s attorney will typically be sitting right at your side, ready to object to any questioning from the opposing attorney that he or she believes is out of line.
Your First Words – There are a few opening questions you will be asked that are standard and should be easy for you to answer. The court reporter will swear you in by asking if you swear to tell the truth, etc. – Just like on TV. However, you will not be asked to place your hand on a Bible as you recite your answer. By the way, if your answer is “no,” your deposition is effectively over.
The opposing attorney will then ask you some really easy stuff. Despite what you may think, these questions are not designed to put you at ease but to get information on the written record that you are who you are supposed to be and to find out something about your background. The questions, however, will actually take some stress out of you because of their nature. For example, you will be asked to state your full name. This will be a piece of cake for you. If you are unable to answer this question, here again, your deposition will conclude within the time it takes the questioning attorney’s eyes to stop rolling.
By Don Bays, CPA/ABV, CVA, CFFPosted on February 11 2014 by admin
Forensic accountants are often asked to assist in marital dissolution matters in determining the value of the community interest and the sole and separate interest of retirement accounts. There are several factors to consider when valuing these interests including the following: 1) the period of contributions to the account(s) versus the length of the marriage; 2) the allocation of gains and losses in the account over the period of marriage; 3) the allocation of any distributions or withdrawals during the marriage, and 4) the expected value of future pension benefits in current dollars. Although every case has a unique set of facts and circumstances, we will provide an example of a calculation that might be performed by a forensic accountant to assist in the division of a 401(k) account.
Calculation of Sole and Separate Property Portion and Community Property Portion of a 401(k) Account
Karen has worked as an engineer for a corporation since 1995, and she has made 401(k) contributions to her employer- sponsored retirement plan since that time. In addition, her company contributes a 5% matching portion to her plan, in which she is 100% vested. Karen and Marty were married in 2005 and legally separated June 30, 2013. Therefore, the contributions to the account prior to marriage are considered to be Karen’s sole and separate property, net of any allocable gains or losses on that portion of the investment. We are jointly retained by Karen and Marty to determine the community portion of the 401(k) account. After reviewing the 401(k) statements, we find that calculating the gain or loss on individual shares of investments will be extremely difficult due to the lack of detailed information and numerous changes in the investment portfolio over time.
We advise Karen to not take out loans or withdrawals until our work is completed and the money is divided. We decide to use the following methodology and procedures to calculate the value of the community interest and Karen’s sole and separate interest in the account:
• We determine the value of the 401(k) account prior to the date of marriage. This amount is determined to be the starting balance of Karen’s sole and separate interest.
• We determine the dollar amount of Karen’s contributions plus the employer match contributions to the account during the marriage and distributions from the account during the marriage. These transactions will be attributed to the community interest. Distributions will reduce the community property interest in the account, unless we find that the distributions were used to purchase sole and separate assets of Karen. In this case the distributions will reduce Karen’s Sole and Separate interest in the 401(k) account.
• We determine if there have been any loans taken out from the account and whether they have been repaid. We determine whether to allocate the loans to the sole and separate interest or the community property interest based on the timing of the loans and the use of the funds. We discuss with Karen and Marty, whether they will share repayment of the loans, if there is a balance outstanding.
• We perform an analysis of the appreciation and depreciation of the account during the length of the marriage. We allocate the change in market value (i.e. gains or losses in the various investments) based on the average percentage of ownership (community versus sole and separate) for the respective period. We may perform this analysis by month, quarter or year, based on the availability of statements and our determination of the costs versus benefits of a detailed analysis. In this case, we assume that each ownership interest contains a similar allocation of assets.
• We determine the value of Karen’s and Marty’s ownership interests as of June 30th, 2013, and then account for any changes between that date and the date of our report. We provide the value to divide in three ways: 1) in dollars; 2) percent of account and 3) shares of the account. With this information, an experienced attorney can prepare a Qualified Domestic Relations Order, or QDRO which is used to divide retirement accounts.
Karen and Marty agreed to the above methodology before we began our analysis. We provided each of them detailed schedules and explanations of our calculations. They were able to divide the account amicably by utilizing a QDRO, which established Marty’s right to the calculated portion of the retirement benefits. The order also protected Karen from paying taxes and early withdrawal penalties on the assets that were transferred to Marty.
Marty’s company has a pension benefit that will be paid to Marty after he retires. In my next blog “Dividing a 401(k) or Pension Benefits in a Divorce, Part II”, I will explain how we calculated the value of the community property interest in the future pension payments.
Julia MiessnerPosted on February 4 2014 by admin
Adequate Disclosure Rules Applicable to Gifts Reported on Form 709
Internal Revenue Code Section 6501(c)(9) places a time limit of three years on the revaluation of gifts as long as adequate disclosure rules are met or satisfied. However, be aware that if the IRS challenges the valuation during the limitation period, the taxpayer’s opportunity to contest it also ends with the limitation period.
Taxpayers Must Comply With IRS Instructions In Order To Commence Running of the Three Year Statute Of Limitations
Instructions to Form 709 specify that any gift reflecting, among others, a discount for lack of marketability, a minority interest, or a fractional interest in real estate, must be adequately disclosed.
For A Gift to be Adequately Disclosed, the Taxpayer Has Two Options:
According to Internal Revenue Code §301.6501-1(f)(2), the taxpayer must attach a statement to Form 709, which contains, but is not limited to, the following information.(*)
- A description of the transferred property and any consideration received by the transferor.
- The identity of, and relationship between, the transferor and each transferee.
- A detailed description of the method used to determine the fair market value of the personal or real property transferred (“property”), including any financial data that was utilized in determining the value of the interest, any restrictions on the transferred property that were considered in determining the fair market value of the property, and a description of any discounts claimed in valuing the property.
- If the value of the entity or of the interests in the entity is properly determined based on the net value of the assets held by the entity, a statement must be provided regarding the fair market value of 100 percent of the entity (determined without regard to any discounts in valuing the entity or any assets owned by the entity), the pro rata portion of the entity subject to the transfer, and the fair market value of the transferred interest as reported on the return.
The other option is to attach a business and/or real estate appraisal to Form 709 in lieu of the information required under IRC §301.6501(f)(2)(iv). Such appraisal must satisfy the following criteria.
- The appraiser must be an expert who regularly performs appraisals.
- The appraiser must possess the knowledge required to value the property.
- The appraiser cannot be the donor or donee or a member of the family of the donor or donee.
Examples of data required by the Service in the valuator’s appraisal are listed below.(**)
- The date of the transfer.
- The date on which the transferred property was appraised.
- The purpose of the appraisal.
- A description of the property.
- A description of the appraisal process employed.
- The valuation methodology employed by the appraiser.
Whether or not the taxpayer and its professional advisors elect option one or two, they should comply with IRS regulations to insure that the value of the gifted asset is not challenged by the Service and the clock starts ticking for the statute of limitation.
The choice between option one and option two should be made after consulting with your professional advisor for guidance.
By Gary Ringel
(*) A complete list of information required by the IRS can be found in IRC Section
6501(c) (9). http://www.gpo.gov/fdsys/pkg/CFR-2010-title26-vol18/pdf/CFR-2010-title26-vol18-sec301-6501c-1.pdf.
(**) A complete list of data required by the IRS can be found in IRC Section 6501(c)
March 20, 2010 blog posted on the website of the Law Offices of David L. Silverman. http://nytaxattorney.com/2010/03/20/requirement-of-filing-federal-gift-tax-return/
December 7, 1999 article posted on UncleFed’s Tax Board. http://www.unclefed.com/ForTaxProfs/irs-regs/1999/td8845.html.
Instructions for Form 709(2013). http://www.irs.gov/instructions/i709/index.htmlPosted on January 28 2014 by admin
Coming from the Silicon Valley, I was excited to hear about Apple’s latest venture into the Valley. Apple is pumping $1.3 billion into a manufacturing facility for vendor GT Advanced Technologies. Plans are to mass produce sapphire glass for future iDevices using GT Advanced’s “state of the art” industrial techniques. This is expected to create around 2,000 new jobs in Mesa, Arizona (700 permanent positions and 1,300 construction jobs). The permanent positions include manufacturing operators and technicians, engineers, managers, and supervisors. GT Advanced will supply sapphire glass to Apple over a minimum of five years. So far, the super durable sapphire glass has been used on the iPhone 5s handset’s Home button where it protects the surface of Apple’s fingerprint-scanning Touch ID sensor. It’s also used to protect the built-in cameras which appear on the iPhone, iPad, and iPod touch. Recent analysis, including the partnership with GT Advanced, indicates that Apple is planning on expanding its use of sapphire glass, possibly for an ultra, scratch resistant smartphone or tablet. (a)
Service-providing sectors accounted for 88.3% of Arizona’s jobs in 2013 (b), so expansion into other areas is important for the diversification of the state. Greater Phoenix Economic Council (GPEC) played a big part in Apple’s venture. Barry Broome, CEO of GPEC, says, “We need to be going after future business for the Valley. The next economy is engineering and electronics. This is where innovation, expansion and exports are going to take place. Our strength in Phoenix must focus on building and attracting these businesses.” (3)
Arizona’s economy grew modestly in 2013, with accelerating growth expected in both 2014 and 2015. A boost like this is just what the Valley needs as we head into 2014!
(a) www.appadvice.com, “Apple’s Arizona-Based Sapphire Glass Manufacturing Partner Goes On Hiring Spree”, by Joe White, January 22, 2014.
(b) Arizona’s Economy, Economic and Business Research Center, Eller College of Management, The University of Arizona October, 2013
(c) AZ Business, January/February 2014, “An Opportunity Oasis”, by Eric Jay Toll
Posted on January 21 2014 by admin
Any business with multiple owners should have a buy-sell agreement in place. Buy-sell agreements are entered into between the co-owners of a business to direct what should happen when an owner leaves the company. A typical agreement covers such issues as who can buy the ownership interest, what triggers a buyout, what price will be paid for the interest and the terms of the buyout.
Who can buy the interest is typically clear. The company can repurchase the interest, the remaining owners can buy all, or a portion of the interest or the interest can be sold to a third party. Often the remaining owners have the right of first refusal to purchase the interest.
The triggering events are also generally pretty clear. These may include the death, disability or retirement of an owner. They may also include terms related to an owner leaving for other reasons.
The price at which the buyout will occur is not always clear. Or, it may be clear but it may not necessarily be fair to all parties. Some buy-sell agreements simply state the departing owner or beneficiaries will receive his/her pro rata share of book value. Consider however the small business that has either distributed or paid out in bonuses the majority of its income on a yearly basis, as well as fully depreciated its fixed assets. What is the book value? It may be zero or even negative. Does that mean that the departing owner’s interest is worth nothing?
Some agreements have a formula based on a number of year’s earnings or revenues. These formulas may not take into consideration a particularly good or bad cycle that will likely not continue. Perhaps a short term contract was very lucrative but will not continue. Or, a competitor temporarily took revenues away but they are just starting to come back. The timing of the departing owner could result in a much higher or lower value than what would be considered “normal”.
A buy-sell agreement that calls for an independent business valuation (or sometimes more than one) at the time of the buyout is often the fairest to all parties. A valuation considers the trends and risks of the company to determine its value at that point in time.
If you haven’t looked at your buy-sell agreement lately, pull it out and give it a read. Ask yourself some questions. Does the determination of value make sense for your business today? Will your beneficiaries receive fair payout from your former co-owners? Does the company have enough life insurance or cash reserves to complete a buyout? Is the formula used outdated for where the company is now?
If you answered no to any of those questions, consider consulting your legal and accounting advisors for assistance with updating your buy-sell agreement.
Melissa E. Loughlin-Sines, CPA, CFE, CVA, CFFPosted on January 7 2014 by admin
There has been much discussion in the valuation community regarding whether a calculation engagement (i.e., a calculation of value of a business) can be used in a marital dissolution in Arizona (and other jurisdictions) and whether a “calculation report” is appropriate in that context. Currently there is little guidance on this matter in Arizona. Should a “calculation of value” be used in the context of a marital dissolution action? I have long maintained that it is generally not appropriate if offered as evidence in that context.
The term “Calculation Engagement” has a specific meaning in the valuation literature and standards. A calculation engagement is defined in the AICPA valuation standards as follows:
“A valuation analyst performs a calculation engagement when (1) the valuation analyst and the client agree on the valuation approaches and methods the valuation analyst will perform in the process of calculating the value of a subject interest (these procedures will be more limited than those of a valuation engagement) and (2) the valuation analyst calculates the value in compliance with the agreement. The valuation analyst expresses the results of these procedures as a calculated value. The calculated value is expressed as a range or a single amount. The calculation engagement does not include all of the procedures required for a valuation engagement…” (*)
On the other hand, a “Valuation Engagement” is defined in the AICPA valuation standards as follows:
“A valuation analyst performs a valuation engagement when (1) the engagement calls for the valuation analyst to estimate the value of a subject interest and (2) the valuation analyst estimates the value…and is free to apply the valuation approaches and methods he or she deems appropriate in the circumstances. The valuation analyst expresses the results of the valuation as a conclusion of value; the conclusion may be either a single amount or a range.” (**)
In a business valuation engagement, the analyst considers all relevant data, and applies all relevant valuation procedures and methods in arriving at an opinion of value. In a calculation engagement, the data considered and the valuation procedures and methods applied are limited based on the agreement of the analyst and the client.
In a recent Arizona case in which I provided testimony, the opposing expert offered a “calculation report” to the Court as evidence of value. The Court ruled that the investigation and determination of the necessary facts by the opposing expert was not thorough and complete, his opinions were not supported by reliable principles regarding business valuation, and he did not reliably apply the principles and methods regarding business valuation to the facts of the case. It remains to be seen whether this case will be submitted to the Court of Appeals. Stay tuned for this and for a more complete article on this topic in our next newsletter.
*Statement on Standards for Valuation Services No. 1, issued by the AICPA Consulting Services Executive Committee in June 2007,
**Ibid.Posted on December 31 2013 by admin
Here’s to a Safe and Happy 2014!!
From the Business Valuation and Litigation Support Group of Henry & Horne, LLPPosted on December 24 2013 by admin
HAPPY HOLIDAYS TO ALL OUR FRIENDS AND COLLEAGUES!!
From the Business Valuation and Litigation Support Group of Henry & Horne, LLP
-- Older Entries »
We believe that this service to our clients, and other interested parties, will bring valued information to those involved in and in need of valuation and forensic services. We bring with us years of knowledge and experience that can provide you with the information you need, or at least a little insight into the business valuation and forensic accounting worlds. As we provide weekly information to you, our reader, we value your input and feedback. We will also share that feedback with others, as we find appropriate. Welcome to Perspectives. We hope you find it informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free advice to non-clients by email, comment response, or phone. Thank you!