Category Archives: Property Owners

Attorneys, Businesses, Eminent Domain, Property Owners, Public Agencies, relocation

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

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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.

Appraisers, Attorneys, business relocation, Businesses, Condemnation, Eminent Domain, eminent domain taxes, Property Owners, relocation

Eminent Domain Acquisition Payments, Relocation Payments, and Taxes

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For certain situations, the case of  Karen Y. Nielsen v. Commissioner of Internal Revenue provides some answers for understanding 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 and relocate the occupants.

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 clear and simple. However, the key is to separate real property acquisition payments from relocation payments. When possible, it will be helpful to work with the public agency making the payments to clarify the type of payment being made.  However, it may not be clear between the two types of payments, particularly when there was a settlement in mediation or court.

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.  The typical test for fixtures is the three-part test known as the Teaff method. 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, or permanent) The 3-part Teaff test may be needed to determine this fixture classification.

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.  See my abbreviated version of the URA relocation benefits for a full but abbreviated list of eligible reimbursable relocation costs. (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 the methods for separating personal and real property in more detail with you as a displaced person, your tax advisor, legal counsel, or your displacing public agency.

If you are searching for guidance on the proper handling of these tax matters, please feel free to contact me.  I’ll put you in touch with tax advisors who have worked in these situations and who I’ve discussed these matters with.

Attorneys, Businesses, Eminent Domain, Property Owners

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

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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.

Appraisers, Attorneys, Businesses, Eminent Domain, Property Owners

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

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Every year thousands of tax filers, and likely, their tax preparers, are dealing with tax issues related to 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.

Until recently, answers to tax issues related to relocation payments have been eluding me for 20 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.

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 re-designated 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 successfully 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, and only eligible for smaller payments, which were based on their depreciated real property value.  The relocation payments received for these items reclassified to personal property where significantly higher.

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 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 would 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. I have recently discussed these matters with tax advisors with experience in these situations and found that handling them is somewhat specific to the situation, therefore, if you contact me, I would be happy to refer you to them.

Appraisers, Attorneys, Businesses, Eminent Domain, Property Owners, relocation

It Pays (Well!) to Submit Actual Cost Items for Relocating Businesses

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MoneyIn my last blog post, “An Overview of Capped Actual Cost Items for Business Owners Affected by Eminent Domain” I discussed two reimbursement options available to business owners who must relocate due to eminent domain; lump sum and actual cost.

The lump sum amount is a rather simple process for the business owner.  He/she simply accepts the $40k[1] available for relocation and ‘calls it a day’.  No other claims processing is needed. Hopefully, the business owner has cash reserves available in addition to the $40k because rarely does a full relocation of a business fall within that dollar amount.

I am often asked by business owners, “$40k (or whatever the capped amount may be) sounds like a lot of money. Why would I want to go through the trouble of calculating actual costs?”

While $40k may sound like a lot of money a business owner can benefit 100 fold or more through actual cost accounting.  Business owners can relocate to a better location and some often upgrade their equipment while previously that might not have been possible. Further, a business owner can include the services of a relocation consultant in their process where the professional costs will be reimbursed as well.  Note: Preparation of claims is not a reimbursable expense, but planning for claims is reimbursable.

But that is really just the ‘tip of the iceberg’ for the business owner who benefits from actual cost reimbursement.

For example, I worked with a pharmacy owner who chose not to accept the lump sum payment.  Line item costs for a handful of reimbursement amounts which the pharmacy owner received are as follows:

Pharmacy Relocation Reimbursements        

  1. Transportation of Personal Property – $27,000
  2. Packing , crating, unpacking, uncrating of Personal Property – Included above  
  3. Disconnecting, dismantling, removing, reassembling, and reinstalling equipment, machinery, and other personal property – $72,000
  4. Professional services for planning , moving, and  reinstalling the personal property – $15,200
  5. Re-lettering signs and replacing  printed materials made  obsolete  by the move – $8,000
  6. Purchase of substitute personal property. $34,000
  7. Searching  for a replacement location (Maximum $2,500) – $2,500Note that there are 27 line items the agency will consider for reimbursement.  I have just listed 7 items which more than exceeds the $40k the owner might have received if he had taken the lump sum.

So I ask, “If your business needed to relocate due to eminent domain, would you take the lump sum offered by the agency or would you consider working with a business relocation consultant to reap the best benefit from your move?”

I offer proof.

My next blog post will indicate the reimbursement for a company with 50+ employees.

 Martyn Daniel
www.EminentDomainandBusinessRelocationConsulting.com

[1]   If a business owner chooses to be reimbursed using actual cost as the basis for the claims reimbursement, bear in mind, though that some expenses are capped.

Note that a $25,000 cap on the category referred to as Reestablishment is the minimum set by the Federal Relocation Guidelines. Some states have higher amounts, some are at $50k or higher, and a few are unlimited. Link to a state-by-state relocation listing here.

In the state of WA, where I often practice eminent domain and business relocation consulting, the Lump Sum cap is $40k.

Appraisers, Attorneys, Businesses, Contact Martyn, Eminent Domain, Property Owners

An Overview of Capped Actual Cost Items for Business Owners Affected by Eminent Domain

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In my last blog post entitled, “Would You Choose Lump Sum or Actual Cost Relocation Reimbursement? I discussed two reimbursement options available to business owners who must relocated due to eminent domain; lump sum and actual cost.

If a business owner chooses to be reimbursed using actual cost as the basis for the claims, some expenses are capped.

Capped Expenses: Reestablishment (maximum $25,000):

Note that the $25,000 cap mentioned above is the minimum set by the Federal Relocation Guidelines. Some states have higher amounts, some are at $50k or higher, and a few are unlimited. Link to a state-by-state relocation listing here.

1. Repairs or improvement to the replacement property as required by law or code

2. Modification to the replacement property to enable the business to operate

3. Construction and installation of new signage to advertise the business

4. Redecoration or replacement of soiled or worn surfaces such as carpeting, paint, paneling

5. Advertisement of the replacement location

6. Increased cost of operations for two years

7. Other items considered essential to the reestablishment of the business

Since an eminent domain and business relocation consultant’s services are an eligible cost when opting for the actual cost for a planned relocation, the capped items listed above are where a consultant’s expertise is important.

For example, #2 – capped within the $25,000 (depending on your state or location) is ‘modification to the replacement property to enable the business to operate’.  A consultant with construction experience can suggest modifications which are contained within that reimbursement amount.

On the other hand, a business owner may simply look at a replacement property (if he even has the time to search for properties) and believe that hefty modifications leading to out-of-pocket expenses is the only solution to enable the business to operate.

Can you see why an eminent domain and business relocation consultant’s services are absolutely necessary to the seamless transition in an eminent domain move?

In my next blog post, I will compare actual cost estimates for relocation for small businesses versus acceptance of the lump sum.

Do you have any questions about the capped amount in your state?

Businesses, Eminent Domain, Property Owners, Public Agencies

Will My Business Have the Necessary Support to Plan My Eminent Domain Relocation?

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eminent domain moving van

 

 

When a business must relocate due to eminent domain, help from the agency is available but there are limitations to that assistance which business owners need to know.

When faced with eminent domain, an agent is assigned to each relocating business.

 

The agent’s services include:

  1. An explanation of eligible reimbursement categories for relocation costs
  2. Answering questions
  3. Obtaining moving bids
  4. Submitting relocation reimbursement claims

 

It is important to note that the agent is not required to plan for the move.  Planning the details of the move is the responsibility of the business owner.

And that can be a problem.

A business owner must maintain his business operations before the move occurs. It is important that the operation continues to produce goods and services to minimize unprofitable down-time. No business owner wants to lose much needed revenue before and during the relocation negotiation process. Employees and other operational expenses still need to be paid.

But the inevitable will occur…the business will need to relocate to make way for whatever improvement is to be in the space the business now occupies.

So planning a proper move is vital to a seamless relocation.

A business owner must find a new location for the business; however, other than providing real estate listings, the agent does not assist with this vital aspect of the eminent domain process.

One major obstacle that business owners face is that they are not typically versed in construction details.  A business owner may find a good location for the business but the building may not be turnkey.  If for example, machinery must be moved, special considerations must be made to ensure that the new location can house the machines.

How will a business owner know if the new site needs major upgrades to accommodate relocating machinery and/or office equipment?

Hiring an attorney will certainly help the business owner understand his legal rights but will these individuals have construction knowledge?  Will they know if a business owner needs additional plumbing to accommodate special equipment?  Will an attorney recognize that a relocating business owner has an opportunity to replace older equipment with updated equipment and can use relocation benefits to make this positive change?

An agent will submit a relocation claim to the agency for reimbursement but the business owner is responsible for recognizing the opportunity for any upgrades and must also plan for a seamless transition.

No two businesses are the same. Every business is unique so a ‘one size fits all’ approach to relocation will not work.  Unfortunately, the agent does not have the time to spend with each business owner to plan individual moves. But more importantly, it is not just about relocating from one space to another…it is about making the move to the new location better than the last.

Many relocating businesses often have the opportunity to make improvements that might have been planned on paper but never initiated at the original site due to lack of space, time or available funding. So relocating to a new site can often mean a fresh start and a chance to make key strategic improvements to the overall business plan.

But again, even improvement planning is the responsibility of the business owner.  The agent is only responsible for ensuring that the right-of-way is cleared and that the owner has the information available to act on the move.

In the case of the Trimet eminent domain case in Portland to make way for light rail, the agent ensures that each business owner receives an Acquisition and Relocation brochure. This is a rather informative document which offers an explanation of terms such as ‘valuation’, ‘just compensation’, and ‘condemnation’.  Again, the document is simply an explanation of what the business owner is required to know but it is a ‘one size fits all’ brochure. And because each business is unique in its service or product, its culture, its size, and its needs, a personalized review of every business is needed but not a requirement by the agent. (Incidentally, an agent may be assigned to more than one business.  If an owner has ever tried to reach other government agencies, such as the IRS for example, to ask questions, all any representative can really do is reiterate IRS rules and code.)

In some cases, if a relocation agent cannot respond to a business owner’s question, the agent has to take the owner’s question to the headquarters to further clarify the question.  For a busy owner trying to keep the business going before the relocation transpires, any time delays could have a negative impact on the operations.

If your business must be relocated due to eminent domain, think about the best use of your time as the business owner.  Will you have the support you need to make the best move possible for you and your business? Think about putting a team in place to help you find the best location for your business.

If you are faced with eminent domain, begin to plan early.  Draw up a list of locations you feel may be ideal for your business. Think about what you want to accomplish…do you want a larger facility or do you want to add a warehouse or a work area?  Will you have equipment which needs to be moved and will that equipment fit in the new location?

 

 

 

 

 

Businesses, Property Owners

Eminent Domain Step-by-Step Process

Eminent Domain

The Step-by-Step Process

This is a brief and typical step-by-step eminent domain process for a commercial property with business tenants:

Acquisition

  1. The public agency determines the properties they need for their project.  This may be the entire property, known as a full take or they may need only a portion of the property, known as a partial take.
  2. The property owner is contacted by the agency to let them know of the agency’s intent to purchase the property.
  3. The agency contacts the property owner to schedule a time for a walk-through of the property with the agency’s appraiser.
  4. The agency relocation agent contacts the tenants that occupy the property to gather business information and describe the relocation benefits.
  5. The agency appraiser and relocation agent walk the property to gather information to formulate the value and to differentiate between real property and personal property.
  6. The agency makes an offer to the property owner based on their appraisal and the agency’s determination of the property’s fair market value.
  7. The property owner either accepts the agency’s offer or begins negotiations by providing a counteroffer with their reasoning for a different value.
  8. The agency reviews property owner’s counteroffer.
  9. If a settlement on the property is not reached, mediation is scheduled and the agency files condemnation.
  10. Early possession and use of the property is requested by the agency.
  11. When possession and use is granted, the agency releases funds to the property owner based on the agency’s original offer.
  12. A court date is set to hear the condemnation case.
  13. If mediation does not settle the case, the agency makes a final offer 30 days before trial.  Legal fees are awarded to the property owner if the court settlement is 10% over the agency’s final 30 day offer.
  14. The court determines the fair market value of the property.
  15. The agency submits any increased amounts to the court for the property owner.
  16. The property title is transferred from the property owner to the public agency.

 

Relocation

  1. Relocation eligibility begins at the time of the offer to the property owner.  Shortly after the offer is made to the property owner, the tenants are notified of their relocation eligibility and given a date when they must vacate.
  2. The agency’s relocation agent acquires moving bids for each tenant.
  3. Each tenant finds their new location.
  4. The tenants relocate to their new location.
  5. The agency pays costs they determine are eligible to the business.

 These are the main steps of the eminent domain process.  Each of them can have many important parts to them that will have an influence on the success of your property sale or business relocation.

 Martyn would be happy to answers your questions with a one-on-one conversation, email, or with one of his Eminent Domain Workshops.

About Martyn, Businesses, Eminent Domain, Property Owners

Eminent Domain, Condemnation, Relocation, and Compensation Workshop

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Property and  Business Owners Learn About Eminent Domain

Businesses and property owners in Battle Ground, Washington facing eminent domain, condemnation, and relocation caused by a highway widening, are getting help by attending an Eminent Domain Workshop.

 Whether a business is relocating, or a property owner or business is reconfiguring their existing location, the best practices for getting compensation for their costs from the government agency are similar.  To cover both subjects, this workshop has been designed as follows:

 The goals of the workshop are to:

  1. Help participants prepare a plan that is best for them using the knowledge of what compensation, or benefits are, and are not, available to them from the public agency
  2. Improve what items and amounts will be paid to them from the public agency
  3. Minimize business downtime
  4. Minimize their time spent on the eminent domain process

 The  agenda for this three-hour workshop follows:

  • How to plan based on knowledge of which costs are eligible and ineligible for payment from the public agency
  • Learn the importance of staying within the eminent domain guidelines
  • How to avoid the pitfalls of common mistakes made in eminent domain
  • How to plan, prepare, and submit costs to improve the approval and compensation of costs from the public agency
  • How to plan to minimize downtime, and be paid, by the public agency for the extra costs related to minimizing downtime
  • Learn what to do, and not do yourself. When, where, and who to seek for assistance, and who will the public agency pay for assisting you
  • Questions and answers on your situation

 

Purpose of Workshop

The purpose of this workshop is to give these businesses and property owners a condensed education about the eminent domain process, more than would be received from other sources, so participants can make informed decisions.  The workshop will not cover all of the details and decisions that will face each individual, however, participants will receive valuable, relevant, and usable information that will improve their outcome with the eminent domain process well beyond the value of their time and cost of the workshop.

 An additional and important advantage for the workshop participants is they will begin networking together, which will help them compare notes during the eminent domain process, to help maintain consistent treatment.  This is helpful because, as much as they try, the public agency does not always treat everyone the same.  This particularly happens when the agency has several agents working on the project, agents are reassigned to other projects, or because the agents do not fully understand your needs or situation.

 Martyn guarantees each participant’s satisfaction of attending the workshop with a full refund at the end of the workshop to anyone not satisfied.

Are you and your neighbors facing eminent domain?

Improved Eminent domain success can be achieved by attending a workshop.   You can also participate in the design of a workshop for your group’s specific needs, location, and situation.  Businesses and property owners will be more successful with eminent domain when they begin planning early, before they loose their options and benefits while waiting.