Category Archives: Property Owners

Please join me at The Eminent Domain and Land Valuation Litigation Conference in San Diego

Please join me for The Eminent Domain and Land Valuation Litigation conference is taking place January 26-28 in San Diego. I’m looking forward to participating in a full range of cutting-edge issues. My own session, alongside Jill Gelineau and Kelly Walsh from Schwabe Williamson & Wyatt P.C, is entitled Lessons Learned and How to Appeal Under the Uniform Relocation Act and will take place on January 26th at 2:15pm.

For more information, please click here.
There is also a coupon to attend in-person: CY009MK at check out. (Save $150.)

Join Me for Easements and Rights of Way in Montana

easements-and-right-of-wayWhen easements and rights of way are condemned causing an occupant to move or modify the use of personal property, state and federal procedures apply. Learn more about who is eligible for relocation benefits and the top 5 categories of relocation benefits within state regulations and Federal Uniform Act. Find out what you can do as an eminent domain attorney, appraiser, or right-of-way professional that will improve the results of your work.

Please join me The Seminar Group’s upcoming seminar on Easements and Right of Way, Friday, November 18, 2016,  Missoula, MT.  You can register here.

Eminent Domain: When Tenants and Landlords Should Work Together

Eminent Domain When Tenants and Landlords Should Work TogetherThe 202 Loop South Mountain Freeway project in Phoenix, Arizona, provides a poignant example of how Business Relocation Planning Services can help to improve the situation for both landlords and tenants who are being displaced by eminent domain.

The Loop 202 freeway, also known as the South Mountain Freeway, is part of a new freeway system being constructed in Phoenix. Businesses being displaced by the project include industries with very specific relocation demands such as cold storage, truck repair, truck services, manufacturing, and warehousing. I recently drove the North end of 59th and saw that the effected businesses were still in place.  This presented a good opportunity for pre-planning services for their eventual relocation. My article, 6 Benefits of Preplanning your Eminent Domain Relocation, will offer some insights into these services and the value that they bring to an eminent domain team.  The article explains that by the time a business has been made eligible for relocation benefits, it’s often times more difficult to prevail in non-standard or complex relocation situations.

I soon learned that the owners of many of the properties in question lease their buildings and properties to unrelated third party tenants. As a result, the owners were not encouraging their tenants to move. Naturally, the landlords want their tenants to remain for as long as possible. This is a common situation and follows the standard practice of dealing with landlord/tenant situations.  However, there are some alternatives to the standard practice that can be of substantial benefit to both parties.

When landlords and tenants work together, there are many advantages for both parties. I have extensive experience working with both sides of the fence—with both the displaced businesses and also with the displacing public agencies—and many times cooperation between the landlord and the tenant can benefit both parties.  This is often related to the method of treatment of fixtures and working with the displacing public agency.

I have encountered situations where, following the standard practice, each party made separate plans with no attempt to explore strategic cooperation. This can make a difference of millions of dollars. In one instance, this led to lost rent for the landlord and loss of tenant relocation benefits of more than $2.5 million dollars. Strategic planning and cooperation between the two parties could have brought additional rental income to the landlord and maintained the tenant’s eligibility for the $2.5 million in relocation benefits.

Tenants are typically obligated to pay their rent through the end of the lease term or until the time of the actual property taking, whichever occurs first.  Long-term and month-to-month tenants will lose their relocation benefits if they move prior to the agency’s real property purchase offer to the property owner, which encourages the tenants to stay at least until that time.

The landlords will have less leverage to hold on to month-to-month tenants after the State has made its offer. It’s far more strategic for the landlord and tenant to have a plan in place before the time of the offer.

I’ve had excellent results obtaining improved relocation benefits or cost-to-cure payments for landlords and tenants who work together. I specialize in conducting preliminary relocation planning services for businesses that will be displaced by a public project.  Utilizing our preplanning services for business relocation while following relocation guidelines based on the Uniform Act nearly always improves the outcome of the relocation.

Attorneys may wonder how this scenario applies to them and to their clients. Attorneys who have extended these services to their owner or tenant clients have found that they are able to recover more funds for the real property acquisition and relocation of their clients.  They have also been able to improve client acquisitions and client satisfaction.

photo credit: Jeroen van Oostrom via FreeDigitalPhotos.net

 

Eminent Domain and the Bryn Mawr Breakfast Club

Eminent Domain and the Bryn Mawr Breakfast ClubThe people of Chicago have been wondering what’s going to happen to the Bryn Mawr Breakfast Club restaurant?

Bryn Mawr is the historic district in Chicago, Illinois that’s on the lakefront of the Edgewater neighborhood far north of the city. Northeastern Illinois University has acquired land along Bryn Mawr Avenue that includes the building that houses the Bryn Mawr Breakfast Club. The land was acquired by eminent domain.

Apparently the owner was aware that NEIU had an interest in the land but the idea seemed far off and he signed a lease anyways. The restaurant quickly became very popular with locals. Then, in August 2014, NEIU began the eminent domain proceedings with the intention to build student housing.

Many problems occur in cases of eminent domain because relocation benefits are not always offered. That appears to be the case for the Bryn Mawr Breakfast Club. Kitchen equipment, furniture, and decorations can be moved, but any upgrades that the owners made to the property may be a lost investment.

Ideally, the owners would be able to find a new location that was previously housed by a restaurant with an existing commercial kitchen. However, if such a replacement property is unavailable, a new kitchen installation could cost $30-$40k.

If federal funds were used in this project, or if state law required relocation benefits to be offered when using eminent domain, NEIU would be required to follow the federal Uniform Relocation and Acquisition Policy Act (URA). The URA provides regulations that offer a fair and equitable treatment of persons displaced. It includes regulations that allow certain relocation costs to be reimbursed to the tenant. Unfortunately, under many projects, as with NEIU’s project, relocation costs go unpaid and the business tenants end up baring a disproportionate amount of the burden of a project that benefits the public.

In the absence of providing required relocation benefits, such as with the URA, and to reduce the burden placed on business tenants, a relocation package should be negotiated where the business occupant will be entitled to relocation benefits for moving personal property and reconfiguring their operations because of the property taking. It’s valuable to have qualified people analyze the issues and facts, and prepare the necessary reports and documentation.

Professionals should be brought in who understand the facts so that they can perform a proper analysis and sort items into the proper categories in hopes that the business can prevail in an acquisition or relocation dispute.

Source

Eminent Domain and Taxes

Eminent Domain and TaxesAs the tax season begins, it’s a good time to remind you and your clients that relocation payments from federal funded projects that use eminent domain to acquire private property are not considered income, and acquisition payments are treated as a capital gain, which can be deferred by a 1033 exchange.

The Federal Uniform Relocation and Acquisition Act (URA) states that relocation payments are not considered income on a federally funded project. My clients and their tax preparers frequently report weak support regarding this URA statement. Because this frequently causes inconsistent treatment of payments by tax preparers, I’ve been prompted to research the issue, not as a tax person but as a relocation consultant, in order to find support for the tax preparer when dealing with relocation payments, and to assist my clients with relocation planning decisions.

My article, Eminent Domain Acquisition Payments, Relocation Payments, and Taxes, outlines the results of my research in more detail here. See here. Involuntary Conversions.

Once it is understood how to handle the relocation payments, sometimes the next hurdle is to identify relocation payments or separate relocation payments from acquisition payments. This dilemma can occur when a dispute resolution process or trial is used to settle a case where fixtures are included, or when a case is a combination of acquisition and relocation issues. These processes often lump things together making it difficult to identify whether the resulting payment was part of relocation or acquisition. They can also inadvertently limit ongoing relocation benefits.

If you are in the process of preparing for a dispute resolution or trial, I can assist you by preparing language to include in a settlement agreement, preparing clarifying check-sheets, and providing other materials to help identify relocation payments. I can also assist you with preserving rights to ongoing relocation benefits.

Relocation Assistance Advisory Services

Relocation Assistance Advisory ServicesWhy a Displaced Business Should Be Concerned with Relocation Assistance Advisory Services, and Why a Displacing Public Agency Should Diligently Provide These Services

Federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA)

On public projects where a public agency is using eminent domain laws to condemn private property, the agency often elects to, or in many cases is required to, follow the URA. For example, a department of transportation might use eminent domain laws in the case for expanding a highway right of way, or adding a new light rail line.

When the project includes federal funds, the public agency is required to follow the URA. When the URA is used, it provides regulations and guidelines that the public agency must follow when acquiring private property and displacing business and residential tenants for the agency’s project. The URA’s regulations are the rights of the property owners, displaced businesses, and displaced residents to receive from the displacing public agency.

Relocation Assistance Advisory Services

The URA requires a condemning public agency to provide six key relocation advisory services to a displaced business. A list of these services follows – Relocation Advisory Service #1-6. I have also included my comments for each of these services as a relocation consultant working for displaced businesses, as well as, working as a relocation agent for public agencies providing these services.

Relocation Assistance Advisory Services vs. Relocation Consulting Services

Relocation Assistance Advisory Services, not to be confused with Relocation Consulting Services, also known as Move Planning Services, are a required service provided by a condemning public agency to a displaced person or business. Relocation Consulting Services are provided by a private consultant hired by the displaced business to plan and coordinate their relocation. Relocation consulting services are a reimbursable relocation expense eligible to the displaced business within the URA regulations.

Success and Failure of Relocation Assistance Advisory Services

When a public agency fulfills these services properly, they will gain important information that will help the agency prepare for the timely use, implementation, and payment of the relocation benefits provided. This is meant to better assist the displaced business to successfully relocate with minimal downtime and minimal out of pocket expenses.

When the public agency fails to fulfill these services, they find themselves ill prepared to provide the necessary relocation benefits in a timely manner. Delay causes unnecessary damages to the displaced business including excessive downtime and excessive out of pocket expenses. For the public agency, they will likely experience needless relocation payments, and unnecessary expenses for appeals and legal fees. The community may also suffer from a loss of jobs, local tax revenues, and productivity if the displaced business fails to survive the relocation.

Appeal or Tort Claim of Relocation Assistance Advisory Services

A business can appeal most anything related to their relocation benefits. Unfortunately, most of the damages caused by the lack of these Relocation Advisory Services are non-compensable within the URA, leaving little to no recovery of costs or damages from the appeal process. A lack of these services inflicts damages in the way of loss of income, loss of customers, and loss of employees, which are specifically excluded from eligible cost reimbursements. Increased costs for the business are another effect, falling into the capped Reestablishment category of the URA and leaving little if any recovery of costs. In addition to or in place of an appeal, some businesses have had success treating this issue as a Tort claim.

CFR Title 49, §24.205(c) Relocation Assistance Advisory Services

This section of the URA outlines the Services to be provided as follows:

Services to be provided. The advisory program shall include such measures, facilities, and services as may be necessary or appropriate in order to:

  • Determine, for nonresidential (businesses, farm, and nonprofit organizations) displacements, the relocation needs, and preferences of each business (farm and nonprofit organization) to be displaced.
  • Explain the relocation payments and other assistance for which the business may be eligible, the related eligibility requirements, and the procedures for obtaining such assistance.
  • This shall include a personal interview with each business.
  • At a minimum, interviews with displaced business owners and operators should include the following items:

Relocation Advisory Service #1

The Regulation:

  • 24.205(c)(2)(i)(A) The business’s replacement site requirements1, current lease terms2 and other contractual obligations3, and the financial capacity of the business to accomplish the move4.

Comments on replacement sites and financial capacity to relocate:

  1. Replacement site requirements – Changed zoning may mean relocating outside of the business’s customer and/or employee base. Some businesses may have special needs that are not readily found in the market place.
  2. Current lease terms – Leases that are several years old may be very different from what is currently available in the market, causing extra expenses for many years.
  3. Contractual obligations – We often find that the displaced property owner or landlord sold the business that is currently the tenant and is now receiving payments for the sale of the business. This creates a need and desire to continue receiving those payments by providing a replacement property to the tenant. In addition, the business may have a contract to supply products or services that may be disrupted by the relocation.
  4. Financial capacity – Most businesses having to relocate do not have the financial capacity or cash flow to finance their own business relocation. Additionally, the move can drain any available cash and cause a loss of sales or income during the move. Knowing the financial capacity of the displaced business should alert the public agency to be ready to provide available tools within the Relocation Guidelines that will assist the business to minimize downtime and out of pocket costs for the move. This may include advance payments, recommending professional services, and assuring the displaced business understands which relocation costs are eligible and not eligible for reimbursement.

Relocation Advisory Service #2

The Regulation:

  • 24.205(c)(2)(i)(B) Determination of the need for outside specialists in accordance with §24.301(g)(12) that will be required to assist in planning the move, assistance in the actual move, and in the reinstallation of machinery and/or other personal property.

Comments on outside specialists:

Most, but not all, displaced businesses need some level of outside specialist support. The public agency, through their agents and consultants, must recognize early on in the project this need for specialists to help a business successfully relocate in a timely timeframe.

Otherwise, the displaced person can also decide that they need a specialist. A specialist may be needed to deal with the business’s unique needs, or, to help free up time for the business owner and key personnel so they can focus on running the business, while the specialist undertakes the planning and coordination of the business move.

I like to see a displaced business have the opportunity to have one person in charge of planning and coordinating their move who will assist them with making the move as though it had been planned and executed for sound business reasons, rather than eminent domain reasons.

Choosing to use a relocation consultant is similar to choosing the use of a general contractor to work on your house compared to you hiring and managing all of the subcontractors yourself and dealing with issues you’re not used to handling, all while you’re at your office working at your day job. There are good reasons why general contractors exist; they are key to achieving your desired results including quality, timeliness, and budget, particularly when multiple trades or vendors are involved.

Much like a general contractor, a relocation consultant can plan, organize, coordinate, and schedule other experts, contractors, and vendors in a manner that minimizes unnecessary costs and downtime, where the business owner participates as much or as little as they desire while they continue to run their business. An example of avoiding downtime is recognizing equipment that needs code upgrades before it’s disconnected and moved, or, as simple as preparing a layout plan for the new location during the planning stage that will maintain or improve the flow of operations or visual appearance to the customers. Unfortunately, relocation agents working for the government agency just don’t have that much time or budget to dedicate to a single displaced business.

For many reasons, it’s helpful for the relocation consultant to be conversant on eminent domain issues. Particularly because the most displaced businesses are not prepared financially for the move. The relocation consultant can help disseminate between acquisition and relocation issues, and assist with qualifying the business for available funding sources such as the relocation benefits. Additionally, many relocation decisions are based on available finances. During the planning stage of the relocation, the business needs to know what they will have to pay for out of pocket and where relocation benefits will help them. This is where the relocation consultant can to offer critical guidance. This marks an important difference when planning the relocation and can mean the difference between the business moving as-is, with the possibility of being in a worsened business situation, or moving in a manner that helps them continue their business success equal to or better than they experienced at their displacement location.

Relocation Advisory Service #3

The Regulation:

  • 24.205(c)(2)(i)(C) For businesses, an identification and resolution of personalty/realty issues. Every effort must be made to identify and resolve realty/personalty issues prior to, or at the time of, the appraisal of the property.

Comments on personalty and realty issues:

When a fixture is classified as realty, the public agency’s payment for the fixture is made to the owner based on its depreciated value, if it is determined to have value. The depreciated value is usually less than the cost of replacing the item. Additionally, the realty payment often goes to the property owner or the real property mortgage holder rather than the displaced business. Finally, realty is not eligible for relocation benefits, leaving the owner to pay from their own pocket to replace this item at their new location. It’s clearly very important to get this right.

Knowledge of the business, personal property, and the laws that distinguish personalty from realty are key to proper personalty/realty classification. Unfortunately, too often the relocation agent and the appraiser do not collaborate on personalty and realty issues or one is not conversant on the issue, leaving flawed or incomplete appraisal reports. This occurrence creates confusion and debate during the business move causing additional relocation costs, delay, and downtime.

To improve on this issue, appraisers (real property appraisers, and FF&E appraisers) should be accompanied on the appraisal walk-through by a relocation agent (as the URA suggests) who has knowledge on this issue. Discussions between those parties should resolve most personalty/realty issues before they become a relocation problem.

Additionally, the business owner will benefit from having their own relocation consultant who is knowledgeable on these issues and involved prior to and during the appraisal walk-through, particularly when there is equipment and machinery involved. This will enhance the collaboration and understanding among all parties including the business owner, which will improve the relocation planning and process. In addition, the cost for this service is often a reimbursable expense to the displaced business or property owner.

Relocation Advisory Service #4

The Regulation:

  • 24.205(c)(2)(i)(D) An estimate of the time required for the business to vacate the site.

Comments on estimated time to vacate:

A relocation schedule must be prepared to take advantage of the available time to properly plan, prepare, and perform the move. Without a schedule, a business may incur unplanned and unnecessary downtime. Downtime can cause a business to lose employees and customers along with income and profits, none of which are eligible for reimbursement, and any of which can cause business disruption and possibly devastation.

For the public agency, a relocation schedule is a tool to reduce unnecessary relocation costs and missed vacate dates. It will also improve the agency’s success with relocating displaced businesses, and improve the usage of public funds.

At a minimum, the schedule should include three milestones: 1) Notice of Eligibility, 2) Acquire Replacement Property, and 3) Vacate Displacement Property. Including some known tasks between these milestones will produce a basic beginning schedule as shown below (dates and task durations are excluded for clarity).

  • Notice of Eligibility
    1. Plan relocation
    2. Search for replacement site
  • Acquire Replacement Property
    1. Plan relocation
    2. Design and permitting for replacement property improvements
    3. Prepare replacement property to receive relocated personal property
    4. Send change of address notices
    5. Disconnect, move, and reinstall personal property
  • Vacate Displacement Property
    1. Finalize move

This basic schedule will give the business owner a starting point for planning purposes. The public agency’s relocation agent should be cautious of including too much detail for liability reasons. Additional tasks and durations can be added, as they become known by the business owner or the relocation consultant.

This basic schedule may be more than is required by this regulation, however, it is an excellent tool that supports the required task. The schedule also makes a significant improvement to most business relocations and is well worth the small amount of effort invested in its preparation for the benefits it produces.

Relocation Advisory Service #5

The Regulation:

  • 24.205(c)(2)(i)(E) An estimate of the anticipated difficulty in locating a replacement property.

Comments on locating a replacement property:

Planning and finding the perfect replacement property that’s affordable and in the proper location can be challenging in the best of times. Because the displaced business was not likely in the process of planning their move before the notice to vacate was delivered, it’s critical for the business to find the right replacement property more quickly than under normal conditions to allow the needed time to prepare the replacement property for the business and to relocate the business. Otherwise, if the vacate date is too near, the business may incur downtime. However, spending the necessary time to find the right replacement property can be essential to the longevity of the displaced business. There is a fine balance between finding the perfect replacement property and avoiding business downtime. That balance point varies for each business.

The fast-food industry is a good example of the effort that goes into selecting store locations. One prosperous displaced fast-food business couldn’t wait for the normal, long, yet successful process of site selection provided by the franchisor, and there was only a year to go until their vacate date. The franchisee short-circuited the proven franchisor’s process in order to quickly find the replacement property without any assistance of the franchisor. The franchisee leased and successfully prepared the replacement site, opening the doors just in time to vacate the displacement property, avoiding any business downtime.

However, during the first year of operating at the replacement property, the franchisee spent an extraordinary amount of money on advertising in an effort to attract customers to his new location and struggled with poor sales. Within the second year of operating at the replacement property while continuing to advertise, the business closed for lack of cash flow resulting from too few sales.

The project’s vacate date will be fixed and unlikely to change. Early on in the project, the displaced business needs to fully understand the project’s inflexible timeline, the tasks, and challenges facing them. To hasten the property search, the displacee needs to know how relocation benefits may or may not help make a particular property suitable and affordable for their business. It is the displacing public agency’s job and/or challenge to inform the displaced business of these issues to help them avoid downtime, as well as find an affordable replacement property that fits their needs, all while meeting the project’s schedule. This begins with the public agency estimating the difficulty in locating a replacement property.

Relocation Advisory Service #6

The Regulation:

  • 24.205(c)(2)(i)(F) An identification of any advance relocation payments required for the move, and the Agency’s legal capacity to provide them.

Comments on advance relocation payments:

Advance payments are often necessary, as well as critical for a displaced business, which often has shallow pockets. Advance payments are often needed for ordering substitute personal property, ordering materials needed for the reinstallation of personal property, and starting design services. A public agency must recognize the need and be ready to offer advance payments. Otherwise, the business relocation may stall at the beginning of the process, which could cause missing the vacate date and delaying the public project, and can cause an unnecessary hardship on the displaced business.

Conclusion

These six Relocation Assistance Advisory Services are critical to prepare for and to accomplish a successful business relocation. Any shortcomings in their implementation leave a wider opportunity for unnecessary costs and downtime to occur.

The public agency must initiate the inquiries of the business to gain the information necessary to properly provide relocation benefits. It is the business’s responsibility to provide the necessary information to the public agency.

I would be pleased to answer any questions you may have on this matter or other eminent domain and condemnation matters you may want to discuss as they relate to relocation and cost-to-cure. Please contact me either by phone 425-398-5708 or email moc.C1508225617LLlei1508225617naDny1508225617traM@1508225617nytra1508225617M1508225617. I look forward to hearing from you.

 

photo credit Stock Images via FreeDigitalPhotos

Relocation Advisory Services – What are they? What happens when they’re not properly provided?

Relocation Advisory Services What are they What happens when they’re not properly providedThe Uniform Relocation Assistance and Real Property Acquisition Policies Act (URA), for federally assisted programs, requires condemning public agencies to provide relocation advisory services as described in part 49 CFR 24.205(c).  Find out what can happen to a business while relocating from a public project when the condemning agency stumbles with this requirement, and, hear some solutions.

As a relocation consultant, I’m looking forward to sharing insights on this subject at this seminar:  7th Annual Eminent Domain; Current Developments in Condemnation, Valuation & Challenges, June 5th and 6th 2014, in Portland, OR.

Eminent domain attorneys, appraisers, and public agency representatives should hear this.

The seminar is arranged by The Seminar Group.  Following is the link to the agenda and registration: http://www.theseminargroup.net/seminar.lasso?seminar=14.EMDOR

Martyn Daniel LLC provides relocation consulting, cost-to-cure designs and estimates, and replacement cost estimates within the right-of-way industry for public and private sectors around the U.S.

Eminent Domain Acquisition Payments, Relocation Payments, and Taxes

The case of  Karen Y. Nielsen v. Commissioner of Internal Revenue provides the answers we need to understand how income taxes apply to eminent domain acquisition and relocation payments.  As an eminent domain relocation consultant, not a tax advisor, I’ve prepared the analysis below based on the information from this case.  This analysis and suggestions are for a typical acquisition of private property and relocation of a resident, business, non-profit, or farm located within a public project using eminent domain and federal funds to acquire property.

This case indicates that:

  • The acquisition payments made for just compensation of real property may be taxable as a capital gain or deferred by use of IRC section 1033.
  • Relocation payments are not considered income and not taxable.

That seems very clear and simple. However, the key is to separate real property acquisition payments from relocation payments. It will be important to work with the public agency making the payments to clarify the type of payment being made.

Moreover, it’s important to identify and properly classify movable fixtures (personal property) from non-movable fixtures (real property). It’s preferable to do this before the move and before relocation payments are made.  I’ve spent a great deal of time making these distinctions for relocation planning purposes by analyzing the characteristics of installed equipment to compare them to various states’ methods for distinguishing between personal property and real property.  Now, as we see, this task is equally important for tax planning within the relocation planning.

Below are my suggestions for recognizing and separating acquisition payments from relocation payments.

Acquisition Payments (Just Compensation) – Payments for the items listed below appear to be taxable as a capital gain but may be deferred by use of IRC 1033:

  • Real property including; land, buildings, and other improvements including; driveways, utilities, well, septic system, landscaping, etc.
  • Fixtures (non-movable)

Relocation Payments – Payments or reimbursements made for the items below should be non-taxable to the displaced resident or business. The items listed are major categories within the Federal Uniform Relocation and Acquisition Act, which are eligible for reimbursement or payment.  (Another time, I’ll expand on these categories and their sub-categories in more detail)

 Resident (homeowner or tenant)

  • Moving and reinstallation of personal property, storage, and other moving related costs
  • Replacement Housing Payment or Price Differential payment
    • Amount by which the cost of the comparable replacement dwelling exceeds the acquisition amount of the displacement dwelling
  • Increased interest on the replacement dwelling
  • Expenses incidental to the purchase of the replacement dwelling
  • Other remedies within the Housing of Last Resort

Business or Farm (property/business owner, landlord business, business tenant, non-profit, farm)

  • Fixed Payment, also known as the In-Lieu Payment
  • Moving Costs including 16 line items of eligible reimbursable costs
  • Reestablishment Costs Including 7 line items of eligible reimbursable costs
  • Related Eligible Expenses including 3 line items of eligible reimbursable costs

Separating eminent domain payments by the categories described above will help you plan your tax obligations. This work will also help you properly plan your relocation and help you receive proper and timely relocation payments, when prepared before you move.

The above discussion is my opinion as an eminent domain and relocation consultant.  I recommend consulting a tax advisor prior to relying on this information for tax purposes.  I would be pleased to discuss these matters in more detail with you as a displaced person, your tax advisor, legal counsel, or your displacing public agency.

Facing Eminent Domain and Relocation? Get the Best Help from Those that Get the Best Results

I had the great pleasure and experience with presenting a unique and customized approach to the eminent domain relocation process to the law firm, Sever/Storey, an eminent domain law firm for landowners. This energetic and collaborative group of attorneys quickly recognized how this unique relocation approach would benefit their landowner and business clients. Throughout my interaction with them, they clearly demonstrated their talent, energy, and commitment to provide the best and most complete service to their clients, which will undoubtedly provide the best results for their clients. If you are facing eminent domain or condemnation in Indiana, Illinois, Ohio, or North Carolina, you need to call Sever/Story at 888-318-3761.

Note: Martyn regularly speaks in many parts of the U.S. on relocation issues related to eminent domain, condemnation, and right-of-way to owners, businesses, and attorneys in group and private settings, as well as, to other professionals at continuing legal education seminars. Martyn can be reached at 425-398-5708.

Are Eminent Domain Relocation Payments a 1033 Tax Exchange or Not Considered Income?

Every year thousands of tax filers, and likely, their tax preparers, are dealing with tax issues on relocation payments received for relocating a business or household from public projects where the government agency is using eminent domain and condemnation. As an eminent domain relocation consultant, my clients frequently bring up tax issues related to relocation payments, or reimbursements. Based on their comments, some tax preparers treat relocation payments as a 1033 exchange; some treat them as non-income; while others treat them as ordinary income.

Answers to tax issues related to relocation payments have been eluding me for 15 years. A few years back I called the IRS for answers. After nearly an hour on the phone with the agent grasping for answers, but not finding any, I heard a sneeze and a click. I was “accidently” disconnected. More recently, I quizzed nearly everyone I know working in the eminent domain field for a connection to someone that knows, only to find leads to dead ends. Now, I’m broadening my search for answers by posting this on my website. Hopefully you or someone you know and trust will offer answers to some long-sought after questions.

Below are quotes from the Federal Uniform Relocation and Acquisition Act (URA) and the IRS, which cause me and others to ask more questions. I included an example of a project raising specific tax questions, and lastly are some common questions I’ve heard over many years from many clients.

All relocation programs for public projects using federal funding are based on the (URA) and include the following language, “No relocation payment received by a displaced person under this part shall be considered as income for the purpose of the Internal Revenue Code of 1954, which has been redesignated as the Internal Revenue Code of 1986 (Title 2, U.S. Code).” This leads to the IRS code which states, “42 USC § 4636 – PAYMENTS NOT TO BE CONSIDERED AS INCOME FOR REVENUE PURPOSES OR FOR ELIGIBILITY FOR ASSISTANCE UNDER SOCIAL SECURITY ACT OR OTHER FEDERAL LAW.” The language in these two items would lead one to believe that relocation payments are not income and therefore non-taxable.

Following is a brief, common, and recent example of a situation that further complicates this issue. On a public project using eminent domain and following the URA, we argued that certain pieces of equipment should be reclassified as personal property and eligible for relocation payments, which includes an optional payment for abandonment of the personal property. The public agency had earlier classified these items as immovable fixtures, which would leave the items ineligible for relocation payments, but eligible for lesser payments based on their depreciated real property value.

To emphasize the magnitude of this tax issue on a business, this client received a payment from the public agency for abandoning several million dollars’ worth of the reclassified personal property. Abandoning personal property is part of the relocation benefits program; therefore, these payments along with payments made for relocating other personal property are considered relocation payments. Taking the language from the URA and IRS at face value, one could believe these payments are not considered as income, thus non-taxable. Is that a reasonable belief?

The tax issues for relocation payments raises some common concerns and questions, such as; treating relocation payments as a 1033 exchange leaves the possibility of a taxable event in the future, which seems contrary to the IRS code mentioned above. In addition, personal property does not seem to fit within the scope of the 1033 exchange. For tax purposes, should payments for abandoned personal property be treated different from relocated personal property, even though both payments are considered relocation payments and presumably non-taxable?

We spend a lot of time analyzing and planning to improve the outcome of our client’s relocation efforts, however, tax planning has been a missing component within those efforts. Unfortunately, I do not have the needed tax answers, and I would like to point these clients to someone who knows.

For Eminent domain relocation payments and taxes, please see our follow-up posting at

http://eminentdomainandbusinessrelocationconsulting.com/?p=1696