|A l p i n e C a p i t a l B a n k N e w s l e t t e r May 2010|
Many thanks to all of you who joined us at the Oak Room for our ten year anniversary celebration. We were gratified to see so many clients and friends. Arianna Huffington was absolutely terrific, delivering an insightful speech on Too Big to Fail versus George Bailey 2.0.
We have had a very busy three months here at Alpine since our last email. At our cocktail party and here in our newsletter, you may have noticed a new logo for the Bank. As we jump into the coming ten years, we thought it appropriate to refresh our look to better reflect who we are and what we hope to be. We remain committed to providing our network of clients with the best service possible.
In the next few weeks, Alpine will be re-locating from its home for the last 10 years here on the 15th Floor at 680 Fifth Avenue. Our new office will be located on the 7th Floor. If you find yourself in the neighborhood at the end of May, please feel free to stop in and say hello.
We have some terrific articles in our newsletter this quarter, including timely articles on the recently passed health care reform legislation and on the New York rental real estate market. For practical guidance, we have two informative articles on tax audits and retirement planning. As always, we thank our authors for contributing.
Thank you again for your continued support, and best wishes as we head into summer.
David M. Aboodi
President and CEO
|Federal and State Tax Audits: The
Next Shoe DropsBy: Paul R. Comeau, Chair and Tax Partner, Hodgson Russ LLP
April 15, "Tax Day," has come and gone. What is next? For some unfortunate taxpayers, a dreaded audit letter follows. Sometimes it comes quickly, but more often it arrives a year or two after the return is filed.
What Do They Want?
They have a few questions for you. They want to know if you filed the proper tax returns. Reported all income. Calculated your liability correctly.
What Are The Consequences?
Will you owe taxes? Face civil or criminal penalties? Should you hire an accountant or attorney to help with the audit? What will that cost? When will the audit end? What can you do to defend against this intrusive and unwelcome investigation?
What Triggers An Audit?
Audits may come from the IRS or from states. They occur for several reasons.
Some are part of a "program." Last year, the IRS and many states offered an Offshore Compliance initiative, which focused on offshore assets and income. Some knew that they had been hiding or under reporting income or assets, but others were completely surprised when they learned of their obligations. Those who failed to "come clean" under the voluntary program are currently subject to far more serious consequences, including possible criminal prosecutions.
Substantiation of "Special" Credits
In the wake of the housing collapse, Congress enacted special incentives to "get the economy moving." One was the new homebuyer tax credit, up to $8,000. But that credit had several conditions attached, and National Taxpayer Advocate Nina Olson has stated that about 14% of the 1.8 million who claimed the credit were selected for an audit. This percentage is far greater (maybe 20 times greater) than the likelihood of an audit for a taxpayer who did not claim the credit. This is not good news for the four million plus taxpayers who are expected to take the credit before the benefit expires.
Normal Substantiation Audits
Maybe an audit is triggered by mathematical or other clear errors on the filed return. Or something on the return may look suspicious, and the government may ask you to "prove" entitlement to a claimed benefit, a tax credit or a business or charitable deduction.
Others audits are triggered by a failure to report income that was reported to tax authorities by third parties, such as a bank. For example, maybe you "forgot" to report interest or dividend income, but the payor "remembered" to tell the taxman about the payment via a 1099 form.
Some audits go in a completely different direction, focusing on your residency status. Perhaps you reside primarily in one country or state, and file as a resident of that jurisdiction. Do you visit other states or countries? How much time do you spend in THAT place? Why are you there? What are you doing there? Do you have living quarters there? Surprisingly, depending on the answers to these questions, you might be taxed as a resident in both your "home" location and also in the place where you are a visitor.
Example: assume that a UK Citizen has business and personal visits to the US over a period of years. Here is a simple test that should be considered: add up total US days in the current tax year, plus 1/3 of the US days in the prior year, plus 1/6 of the US days in the next prior year. If that total exceeds 182, the UK Citizen might be 100% taxable on all worldwide income as a US resident. A scary prospect.
Example: Assume a Connecticut resident with a spouse and young family in Connecticut works in New York City and has an apartment in the City for occasional use. If this commuter spends more than 183 full or part-days in New York City in a given year, the commuter could be 100% taxable as a NYC resident on worldwide income. In addition to full resident taxes in Connecticut (partially offset by a credit for taxes paid to New York on New York wages and other New York source income). Yikes!
In either of the above examples, tax authorities will want to test these rules and others to determine whether full and proper taxes have been paid.
How to Handle an Audit
Don't panic. Maybe you made a mistake, or maybe the tax authorities made a mistake by selecting you for an audit. Either way, try to respond in the following manner:
First, do not ignore the matter. It won't go away by itself, and it won't get better if allowed to fester. If you do not respond, the audit issue may be resolved against you by default, and tax collectors may come after you, obtaining liens on your assets and seizing your assets to satisfy the tax debt (which may include interest and costly penalties). In our practice, we have seen tax bills (that may have been erroneous when first issued) become "fixed," then double or triple over time due to the addition of penalties and interest, compounded by the passage of time.
Second, study the audit letter. Is it from the IRS or from a state? Did you file a return? Is the letter seeking specific information regarding a particular item on the return? Or is this a broader investigation?
Third, determine whether the matter requires professional assistance. Did you prepare your own return, or did you use an accountant or other preparer? If you used a preparer, let them know you have received the letter. They may want a copy. Ask them whether this matter requires their assistance, or the help of another advisor or an attorney.
Fourth, if there is large dollar exposure, or there is a chance of criminal or civil penalties, or the question is complex, the assistance of a tax attorney may be desirable. If this is the case, consult with them before responding to the audit letter.
Fifth, collect applicable records, review them, and begin preparing audit responses.
Sixth, be prepared for follow-up questions. Your initial responses may lead to more questions aimed at the original subjects or, possibly, new matters. Auditors are suspicious and curious.
Seventh, be patient. This may take longer than you would expect.
Eighth, if you disagree with the audit findings, consider an appeal. Maybe you are right. Weigh the benefits of an eventual victory against the monetary and emotional costs of a drawn out battle with the tax authorities.
Ninth, there is someone on your side and in the government, empowered to help when you are caught up in an audit or collections mess. The National Taxpayer Advocate was mentioned earlier in this article. Area Taxpayer Advocacy Panels also exist. Finally, state advocates exist in many states. For example, New York created the Office of the Taxpayer Advocate in October 2009, headed by Deputy Commissioner and Taxpayer Advocate Jack Trachtenberg. His office has been very busy proposing legislative and administrative changes to improve the balance in the relationship between taxpayers and the Tax Department.
Tenth, learn from your mistakes, and theirs. If something is proper but confusing, or is reported in a manner that sounds alarms for a state or the IRS, consider alternatives to avoid recurring problems.
Paul R. Comeau, Esq. is Chair of Hodgson Russ LLP, with offices in New York City, Palm Beach and four other locations. He specializes in state, federal and estate tax planning, and is best known for the thousands of residency audits handled by his firm. He has authored numerous books and treatises, including "Contesting New York Tax Assessments," and the "Residency Audit Handbook." He can be reached at: email@example.com, or at 800-724-5184.
The Patient Protection and
Affordability Care Act
Over the past few weeks, much has been reported about the provisions of this complex and historic Federal Health Care legislation, including clarification of the mandates for insurers, employers, providers and employees. While some of the bill's provisions will begin this year, the majority of the changes will take effect in 2014. Below are highlights of the Federal Health Care Reform bill that includes mandates to provide coverage for more Americans, implement plan provisions for all health care plans, and collect new taxes to pay for his expanded coverage.
Expanded Coverage for More Americans
- Individual mandate. In 2014, Americans must pay for health insurance or pay an income tax penalty - enrollment in an employer-sponsored health plan will satisfy this requirement. People who have been locked out of the insurance market because of a pre-existing condition would be eligible for subsidized coverage through a new high-risk insurance program later this year, until 2014, when state-run "Exchanges" will be available.
- Employer Responsibility: Employers are not required to offer coverage; however, they will be subject to a financial penalty if at least one employee receives a federal subsidy to purchase coverage through a State Exchange. Employers with more than 200 employees that offer coverage must automatically enroll and renew coverage, subject to notice and opt-out requirements.
- Small Businesses (fewer than 25 employees)may be eligible for new tax credits that would cover up to 35% of health-insurance premiums. Workers at small businesses eventually will be able to buy policies through "Exchanges", where health benefits will have to meet minimum standards.
Plan Provisions for HealthCare Plans
- Group/Individual plan changes that will begin later this year include:
- No annual/lifetime limits on "essential" benefits.
- Coverage cannot be rescinded or canceled when people get sick.- Children with pre-existing conditions cannot be denied coverage.
- Dependent children up to age 26 (not eligible for coverage on their own) can remain on parent's plan.- Mandatory 100% coverage of certain preventive care.- Over the counter medications no longer eligible under Flexible Spending Accounts, Health Savings Accounts, and Health Reimbursement Accounts.
- Group/Individual plan changes with later effective dates (by 2014) include:
- No preexisting condition exclusions and no discrimination based on health.
- Waiting periods cannot exceed 90 days.
- Limitations on cost-sharing ($5,000 individual / $10,000 family) and deductibles for small groups ($2,000 individual / $4,000 family).
- Changes in the Medicare Part D Prescription Drug program: In 2010, consumers who hit the "donut hole" will receive a $250 rebate and in 2011, they will receive a 50 percent discount on brand name drugs. The gap will reduce gradually until 2020, when consumers will be responsible for 25 percent of the cost of their medications until Medicare's catastrophic coverage starts.
Paying for the Patient Protection and Affordability Act
The estimated cost of $940 billion over the next ten years will be funded through taxes, fees and medical savings. Revenue from new taxes will come from:
- Elimination of the Employer Part D subsidy deduction in 2013. Employers must recognize the accounting change this year.
- Reduced Tax Deductions for Health Care Expenses, such as Health Care FSA contributions limited to $2,500/year and indexed for inflation (2013); medical expense tax deduction increases from 7.5% to 10% per year; and increased penalties for non-qualified medical expenses paid from a Health Savings Account.
- Higher Taxes on Investment Income and Medicare Payroll Taxes in 2013 for Affluent Individuals, which is defined as annual income above $200,000 for individuals and above $250,000 for families).
- Cadillac Plan Taxes in 2018. 40% tax on premiums exceeding $10,200 or more for singles and $27,500 for families. Employers will begin including the aggregate amount of employer-sponsored health insurance on W2s in 2011.
- Increased Taxes on Medical Devices, Drug Manufacturers and Insurance Companies.
- Increased Premium and Out-of-Pocket Costs. It is still unclear what effect the legislation will have on rising out-of-pocket medical costs and premiums that will ultimately be paid by individuals.
This information is provided by BWD Agency Inc, Jericho, New York, a full-service insurance broker.
|The Hidden Value ... in the Valuation of Trademarks|
By: Michael Graham
A Nike swoosh, a Ralph Lauren polo player, an Izod alligator - what do all of these symbols have in common? They are recognizable logos that directly relate to the company's brand and image - and by extension, the market share, profits, and also the value of these companies.
What is a trademark?
Unlike tangible assets such as cash, furniture, and accounts receivables, intangible assets are resources that have no physical substance, but convey valuable rights and privileges to a business. Trademarks, which fall under this category (along with patents, customer lists, and goodwill), are valuable tools which can be used to market or promote a product or service. Since they offer the ability to brand a product and provide incremental profits to the owners, they can be very valuable to the holder of the mark.
Why is a trademark valuable?
Companies work hard to protect their mark - hiring legal counsel to aggressively pursue anyone who infringes on their brand, including vendors who sell knock-off products that imitate the brand. And it is not only knock-off vendors who come under fire. In 2008, for example, NYC & Company partnered with Whole Foods to launch limited edition shopping bags that were intended to promote green initiatives. A dispute arose over the use of a green apple. NYC & Company claimed that it was just playing off New York's "Big Apple" logo. Apple, on the other hand, said that it looked too much like its own well-known logo, thereby diluting its trademark, and ultimately cutting into company profits. If Apple could prove that consumers were confused by the campaign, it may be able to sue for lost profits that resulted from the infringement. In situations like this, an intellectual property valuation expert may be retained to determine the value of the trademark, as well as the lost profits.
What are the reasons for valuing a trademark?
Trademarks are valued for many different reasons, not only those relevant to infringement disputes and litigation issues. They may also be valued for taxation purposes (including estate and gift), transactions (licensing, financing, and transaction support), financial reporting, marriage or business dissolution, and bankruptcy. In some instances, intangible assets can also be pledged as collateral, however, this would require an appraisal, similar to the process of pledging a house as collateral for a mortgage.
What are the key considerations in trademark valuations?
Valuation experts often talk about their practice as both an art and a science. This is especially true in valuing intangible assets. Because transactional data for the sale of trademarks is difficult to find, a common approach to valuing a trademark is the "Relief from Royalty Approach." This methodology is often used to determine what royalty payments would have been made in order to generate the same marketing and branding benefits. By owning a trademark, the buyer saves the expense of paying a licensing fee (similar to rental payments) for the asset. If a trademark is not owned but is used in the branding of a product, the user would have to pay a fee to the owner of the trademark. By researching applicable royalty rates, an expert can determine the applicable license fee for the trademark. In addition, the expert would test the overall value by examining prior marketing and promotional expenses for the product, as these tend to enhance the public's perception of the product. Finally, the expert can apply a royalty rate to forecasted revenues of the trademarked product, and then discount the royalties to present value in order to determine the ultimate value of the trademark.
In summary, trademarks can have significant value which quite often, is separate from the tangible assets of the business. The effect of the trademark on potential price increases, unit sales, and relative costs are all important considerations. However, as with many types of intellectual property, intangible assets can also be very unique. As they are usually bundled with other types of intangibles, determining their value as single components can be challenging. Therefore, it is important for the trademark valuation expert to consider all factors relevant to the circumstances of a particular trademark.
Michael Graham is a Senior Vice President with FMV Opinions, Inc. and leads the firm's Intellectual Property valuation practice. He specializes in the valuation of capital stock, total business enterprises, and intangible properties for the purpose of financial reporting. FMV Opinions, Inc. is a preeminent national valuation and financial services firm with offices in New York, San Francisco, Los Angeles, Irvine, Chicago and Dallas
Meet the People at Alpine Capital Bank:
Ms. Trivone has been with Alpine Capital Bank for nearly three years in the position of Operations Manager/Assistant Controller. Lorraine oversees day-to-day operations at the Bank, working with the Federal Reserve and other institutions. She is involved in financial statement preparation, customer service support, and transaction processing. Before joining Alpine, she worked as an Accounting Manager for over twenty years for the New York Board of Trade with three direct reports. While working there, she earned her bachelor's degree in Accounting from the College of Staten Island.
Ms. Trivone was born and raised in Brooklyn and currently resides in Staten Island. She is married and has a fifteen year old step-daughter. Ms. Trivone enjoys spending time with family and friends, traveling, taking long drives, and taking care of her two cats.
By: Sarat Sethi, CFA®, CIC
Retirement--we are eager to retire, yet we also worry about how to afford it. We ask, how much money will we need? What are the main risks we face? As I see it, there are two main risks to our retirement finances which we either ignore or do not know how to think about--longevity risk and asset allocation risk. Without addressing these two topics, it is almost impossible to devise a plan that will serve as a roadmap for the future.
First, what do I mean by longevity risk? Today, one should expect and plan to live a very long time after retiring. With every generation, advances in medical treatments, new medicines and healthier lifestyles are increasing projected life spans. This means that we must either reset our expectation of retiring at age 65 or recalibrate the amount of capital we will need if we retire. As people transition from full-time work to retirement, they move from the "accumulation of capital" stage to the "distribution of capital" stage. This distribution stage is longer in duration than in the past and could reach over a third of a person's lifespan! A publicly available study done in 2000 by the Society of Actuaries* shows that an average male, once he has reached the age of 65, has a 50% chance of living to age 85 and a 25% chance of living to age 92. The average female has a 50% chance of living to age 88 and a 25% chance of living to age 94. Furthermore, a married couple has a 50% chance of one spouse living to age 92 and a 25% chance of one spouse living to age 97, if both reach the age of 65.
Second, with regard to asset allocation risk, most investors have been taught to never touch principal but rather to live off the dividends and interest generated by their capital. Today, sophisticated investors realize that this school of thought has become outdated. We believe that, rather than focusing exclusively on the actual dividends and interest earned in a portfolio and making investment decisions based on a need for this current income, it is better to withdraw a fixed percentage of the portfolio and leave the investment strategy and asset allocation decisions in the hands of investment professionals. This approach uses a rule of thumb whereby a retiree takes 4% - 5% of his/her portfolio's three-year rolling average market value as a new "salary." Commonly called the "total return concept," this model utilizes interest, dividends, and some capital appreciation to fulfill a retiree's cash-flow needs. It is used by most institutions that live off of their endowments, and has found its way into "trust" rules in many states. Simply put, withdrawing principal from a growing pool of capital is better than restricting the growth of that capital by investing solely in common stocks that pay high dividends and/or bonds.
Unfortunately, after the recent financial crisis, many investors are now reluctant to invest for the long-term in the stock market. After all, the market, broadly defined as the S&P 500, has produced flat returns over the past 10 years. From an investment point of view, the media has called this period the "lost decade." Despite the poor results of the past decade, we believe that investment returns from common stocks over the next several years could be higher than the returns of the past decade.
As people get older, they tend to reduce stock portfolios and attempt to meet lifetime income needs by investing in fixed-income instruments (bonds) or holding cash. This may be a somewhat plausible approach in an environment in which bonds delivered average returns of 5% - 6%. Today, unfortunately, prevailing interest rates are so low that income needs cannot be provided by investing in bonds alone. In fact, if interest rates rise, bonds may actually lose value. Yet, ironically, investors continue to seek comfort in bonds! Unless investors have vast amounts of cash resources, this extremely conservative strategy may prove to be quite risky to their long-term financial well-being. Conversely, investments in stocks may provide the desired long-term upside to meet the longevity risks and also provide a hedge against inflation.
While it is impossible to predict what the future holds for investors, it is prudent to prepare for the future by creating a well-diversified portfolio that incorporates stocks, bonds and cash. The allocation of each asset class should be appropriate to one's risk tolerances, and holding all of one's capital in a single asset class is too risky. To achieve our retirement goals, we must plan for living longer than we expect and maintain an asset allocation that supports that plan.
*The RP-2000 Mortality Tables, Society of Actuaries
SARAT SETHI, CFA®, CIC
Principal, Portfolio Manager/Equity Analyst
Sarat graduated magna cum laude from Lehigh University in 1992 with a Bachelor of Science in Business and Economics, and later earned a Masters in Business Administration from Harvard Business School. Sarat joined Douglas C. Lane & Associates, Inc. in 1999 and became a principal in 2001. Sarat has served on Lehigh University's Board of Trustees, is President of the Lehigh University Alumni Association, the Vice-Chairman of Lehigh's College of Business and Economics Board of Advisors, and President of the Martindale Society, and serves on the Executive Committee of the Board of inMotion, Inc., a New York-based non-profit organization which provides assistance to victims of domestic violence. Sarat holds the Chartered Financial Analyst® designation, is a chartered Investment Counselor and a member of the New York Society of Security Analysts. IMPORTANT INFORMATION ABOUT THIS ARTICLE
This article has been prepared by Douglas C. Lane & Associates, Inc. ("DCLA"). DCLA is registered as an investment advisor with the Securities and Exchange Commission.
This article is for information purposes only and should not be construed as an offer to buy or sell any security. None of the information contained in this article constitutes, or is intended to constitute, a recommendation of any particular security or trading strategy or a determination by DCLA that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and is not tailored to the investment needs of any specific person. If you have any questions or comments about this article, or would like to learn more about a particular topic or issue raised in this article, please email firstname.lastname@example.org or call (212) 262-7670.
Manhattan Rental Market HighlightsBy: Stephen Kotler
Although face rents (rental prices before consideration of concessions) in the Manhattan residential market remain below levels of a year ago, rental prices were stable in the first quarter of 2010, up slightly from the fourth quarter of 2009. While rising rental prices are consistent with seasonal patterns, this improvement was also the result of an uptick in rental activity and a stabilizing inventory. Over the past two years, the regional economy was weakened by rising unemployment. To the extent that this condition stabilizes, the rental market is usually one of the first housing sectors to respond.
Key Trend Metrics
- Average rental prices stood at $3,812 during the first quarter of 2010, down 8% from $4,142 one year ago, but up 0.6% from the end of 2009.
- Rental price per square foot declined 3.1% to $46.91 per square foot, from $48.41 per square foot during the same period last year, but was essentially unchanged from $47.02 per square foot in the prior quarter.
- Median rental prices declined 6.1% to $3,100 from $3,300 in the same period last year, but were up 6.9% from $2,900 in the prior quarter.
- The number of new rentals increased 16.3% to 2,663 units, from 2,290 units in the prior year, and up 8.4% from 2,456 units in the prior quarter.
- During the current quarter, listing inventory fell 30.8% to 5,204 units, from 7,522 units a year ago. This level was essentially unchanged from 5,225 units in the last quarter of 2009.
- The number of days on the market was 86 days, essentially unchanged from 87 days this time last year, and up from 76 days in the prior quarter.
- The listing discount from the original list date was 6.4%, down from 8% in the same period last year and essentially unchanged from 6.5% in the prior quarter.
Stephen Kotler is a Managing Director with Prudential Douglas Elliman. With over 70 offices in the New York area, Prudential Douglas Elliman is one of the city's pre-eminent firms in residential sales and rentals. The information presented below appears in Prudential Douglas Elliman's Manhattan Rental Market Overview 1Q 10.
The Prime Grill boasts a relaxed atmosphere with elegance and style. Nationally acclaimed for dry aging steaks on premises, The Prime Grill serves classic steak house offerings such as rib eye cuts, atlantic salmon, and fresh sushi. The restaurant features an international wine list and complete bar with classic and exotic drinks. The Prime Grill offers professional, gracious service and premier private dining. Let the masters of steak provide the perfect dining experience. The Prime Grill was voted two years in a row as New York's number one kosher restaurant by Zagat.
|Frequently Asked Questions|
Does the Bank offer online bill pay?
Alpine Capital Bank began offering online bill payment for its consumer clients in late 2009. This service is available directly from the Bank's website, and offers a comprehensive suite of bill payment features, including scheduled and recurring payments.
In early 2010, Alpine also began offering an online bill payment product geared to its business clients offering additional features, including an option for dual authorization of payments. As with the consumer version, payments are made either electronically, or by a check drawn on your account at Alpine.
To sign up for either version of online bill payment, please contact Tashana Smith at 212-328-2489 or email@example.com.
Can I use my ATM card abroad?
Alpine Capital Bank's ATM cards can be used at any ATM machine bearing the Cirrus logo, including over 900,000 Cirrus ATMs worldwide. If you are planning a visit abroad, please feel free to contact the Bank to ensure that you will be able to use your Alpine ATM card.
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