Letters from our President:   06/16/2008 Atlas Forum on Moving 10/17/2007 The Real Cost of Relocation in a Slow Real Estate Market 10/30/2006 Sarbanes Oxley 06/08/2006 39th Atlas Forum on Moving 12/13/2005 Revenue Ruling 2005-74 1/24/2005 Past and Present Mold Issues 12/29/2004 CLUE Database 11/16/2004 Amdahl v. Commissioner, 108 T.C. 507     06/16/2008 Atlas Forum on Moving Recently, I was given the opportunity to attend the 41st Forum on Moving presented by Atlas World Group, Inc.  The annual Forum served two purposes.  It provided Atlas Van Line agents and selected customers the opportunity to attend a presentation of the Atlas 2008 Corporate Relocation Survey.  Additionally, it provided a top line list of speakers addressing such topics as the current economic situation and relocation policies trends as they relate to the national housing market.  The Corporate Relocation Survey polled approximately 400 companies about factors that affect the industry and influence policy.  Several interesting responses to the survey were presented:        In 2007 30% of the respondents cited that employees declined relocation opportunities because of housing/mortgage concerns.  For 2008, those declining relocations for concerns about housing/mortgage had risen to 50%.        “Growth of the company” was cited by 46% of the respondents as the top internal factor affecting relocations for 2007 which is significantly below 2006 where it was reported as 59%.        Of the respondents, 46% predict that the U.S. economy will worsen in 2008.  Only 9% predicted worsening conditions in 2007.        The majority of respondents, 81%, believe that their relocation volume will be the same or increase in 2008 and 86% believe that their relocation budgets will stay the same or edge higher in 2008.        Relocation benefits for transferring employees and new hires are on the rise.  Full reimbursements of relocation expenses for employees are up to 63% from 55% the previous year and up to 54% from 42% for new hires.  Lump sum payments for employees have increased to 44% from 32% and increased to 49% from 31% for new hires.  Complete results of the survey can be found at www.atlasworldgroup.com/survey.  Noted economist, lawyer, author, financial analyst and TV/movie personality, Ben Stein, provided one of the principal presentations.  He began by stating his belief that we are “in the stress relief business… the get it done right business.”  Among the problems that the U.S., currently faces, he believes the greatest to be the retirement of 70 million baby boomers, an effectively bankrupt Medicare system, the collapse of the dollar, a problem with education and the failure of the family and social structure.  It is Mr. Stein’s belief that the economy is slowing but that we are not in a recession.  He believes that this should not have happened, but speculators have driven down the mortgage business and driven up the price of oil.  While we may go into a recession, it is also his belief that the Fed will flood the system with money and that the economy will straighten itself out.  His advice is that we remain patient and things will get better.  He also advises that this is an opportune time to buy real estate.  His belief is that there is a pent up demand for housing.  He also believes mortgage lenders will begin to relax their underwriting requirements so more buyers can qualify for their mortgages.  The result should then be a gradual increase in home sales as we move through 2008.   Sincerely, Greg Hutchins President/CEO Return to the top     The Real Cost of Relocation in a Slow Real Estate Market Why do companies relocate employees and new hires?  So they get the right talent to a location where it is needed. What needs to be done to complete a successful relocation?  Get the employee and family to the new location and fully productive as quickly and cost effectively as possible. This is relocation in a nutshell but it covers so much more.  Assuming that everyone understands the “Why” of the relocation decision, the “What” has several issues that need to be discussed, especially for homeowners and especially in today’s national real estate market.  The downturn in new and resale homes has been sufficiently documented.  The National Association of Realtors® reported in 2005 that 2.9 million homes were in inventory representing a 4.5 month supply.  In 2006, the inventory of homes had risen to 3.45 million homes representing a 6.5 month supply.  In April, 2007 inventory homes stood at 4.2 million with an 8.4 month supply and, finally, in August 2007 the figure stood at a 9.8 month supply.  This represents a 117.7% increase in the supply of homes available across the country.  It is a fact that slow real estate markets increase the “expense” to companies relocating their homeowner employees.  But what are the real “costs” of relocation?  Home sale relocation benefit program expenses that increase in a down real estate market include carrying costs for the home at the departure location experienced while the home is being marketed, increased loss on sale and increased selling concessions when the home is sold.  Additionally, loss-on-sale assistance benefits to the employees will increase as a result of slow real estate markets.  This is evidenced by 39% increase in this corporate relocation benefit between 2005 and 2006 as reported by ERC. These expenses are quantifiable and certainly do have an effect on a companies bottom line results.  And many companies will make the decision to cut back on the home sale benefit to save on the overall expenses of relocation.  Such a decision may be just the wrong thing to do.  There is much more than the dollars and cents issue when it comes to the difference between using the relocation service company and reimbursing your employee for selling expenses.  It reflects back to the “What” that we started with.  When the relocation home sale service is used, your employee is provided a guaranteed purchase.  Your employee can accept the relocation service company offer to purchase their home, receive their equity, move to the new location with their family and settle in to their new responsibilities.  In other words, both the “Why” and the “What” have been accomplished.  In the event of a reimbursement for closing costs, your employee is left on their own to find a real estate agent to list their home, find a buyer, negotiate a sale and attend to a closing – without the benefit of assistance from any source.  And your employee is competing in those markets where there is a substantial supply of other properties for sale.  Additionally, a cost savings may not even be realized when comparing the two different benefits if the reimbursed closing costs and a loss-on-sale benefit are fully grossed-up.  Many times a family is left at the departure location until the home is sold.  Meaning that in all likelihood there will be many months of separation.  When temporary living benefits run out, your employee could have added expense associated with running two housing units.  Expenses also increase for your employee as a result of travel home to visit with their family during the time that their home remains unsold. This scenario clearly does not support either the “Why” or “What” of your company’s relocation program.  The most difficult expense to quantify is that of the human toll.  Relocation is reported to be the third most stressful event in a person’s life following death of a close relative and divorce.  When spread out over extended months of uncertainty as to when a home will sell, the anxiety and anticipation take a toll on productivity.  If your company should lose just 10% of an employee’s productivity due to travel home and time spent in trying to manage the sale of their home, it relates to a $10,000 loss to your company if the employee earns $100,000 annually.  Additionally, studies show that extended periods of separation and stress can contribute to social and health related problems. Expense associated with these productivity and human issues is not a P&L item, but it is expensive.  Considering your responsibilities for designing and administering the relocation benefit package that meets the company’s objectives, we hope that we have assisted in identifying some areas of concern that can guide you in meeting those objectives. Sincerely, Gregory S. Hutchins, CRP, GMS President/CEO Return to the top     Sarbanes Oxley Having recently returned from the Worldwide ERC 2006 Global Workforce Symposium held in Dallas, TX, I wanted to pass along some insights that may be important to your relocation program. Residential Real Estate Market Two sessions were devoted to evaluating the true picture of residential real estate today.  One session featured a well respected economist along with a representative from the mortgage industry and two corporate representatives.  This sessions’ approach was to analyze national data to search for an answer to the effect of reduced residential real estate sales.  Their belief is that demand continues to exist but that the market has a substantial supply of new and existing homes for sale.  This coupled with slightly higher, but still very reasonable, interest rates are causing buyers to take their time regarding their purchasing decisions.  Some economic indications to support this theory are:         Existing home sales increased 50% in from January, 2001 to January, 2005.  From August, 2005 to May, 2006, existing home sales have decreased 7% to about the same rate as in mid-2004 – and that was considered a very strong market at the time.        From January, 2000 to October, 2005, the national average annual appreciation of residential real estate has gone from 2% to 17%.  That same average is now at 1% which is mostly affected by declining sales prices in higher value markets. The other session was presented by senior executives in large real estate companies from various geographic locations across the United States.  Each presenter surveyed the markets in each of their geographic regions and presented the findings of those surveys.    Their survey found that factors that affect national averages, which are published by the national media, are the declines in the markets that were appreciating the fastest and were in the higher ranges of average selling prices – namely California, Florida, Arizona, and the Washington, DC area.  Additional areas of decline with more moderate housing prices include Michigan, northern Ohio and metro Chicago.  On the other hand, there are markets that continue to increase their average selling price including Texas, Nevada, Oklahoma, New England, North Carolina, Oregon, Washington and Georgia.  The gratifying outcome of the two sessions is that they whole heartedly agree with each other.  Their collective belief is that while residential real estate sales have slowed in most markets and inventories of unsold homes have typically increased along with mortgage rates, those markets have not seen a decline in their average selling price but are seeing a slowing of appreciation.  Sarbanes Oxley (SOX) Dick Mansfield, Mansfield and Associates and ERC General Counsel, advised that the Securities and Exchange Commission (SEC) has recently adopted amended financial disclosure rules regarding SOX.  Under Section 402 of SOX, a company was permitted to omit disclosure of “information regarding group life, health, hospitalization, medical reimbursement or relocation plans that do not discriminate in favor of executive officer or directors (and some other highly compensated individuals) and that are available generally to all salaried employees.”  Under the new Section 402 disclosure requirements, all relocation expenses must be itemized for executive officers and directors even though they may be offered to larger groups of salaried employees.  This means that all relocation expenses incurred in the transfer of a Section 402 officer or a director must now be disclosed in SEC filings. It is CRG’s recommendation that you review your relocation policy concerning equity advances and expense reimbursement via debit cards regarding Section 402 officers and directors.  It is also our recommendation that you contact your SEC compliance officer to discuss these new disclosure issues.  Additionally, it is our recommendation that you contact your Section 402 counsel and alert them to this issue.  CRG will provide any information to you or your counsel that is necessary for you to meet these new SOX Section 402 requirements. It is our pleasure to have the opportunity to share these highlights from the ERC conference with you.  We hope that this information is useful in performing your relocation responsibilities.  If you should have any questions, please feel free to call.  Sincerely, Gregory S. Hutchins, CRP, GMS President/CEO Return to the top     39th Atlas Forum on Moving Recently I was fortunate enough to receive an invitation to the 39th Atlas Forum on Moving held in Philadelphia, PA.  This annual event is produced by Atlas World Group to bring relocation professionals together to present Atlas’ annual Corporate Relocation Survey and to discuss current topics and trends affecting the relocation industry.  The day and a half meeting was concise and provided many industry insights.  Some of which I would like to share with you. I will attempt to present the best ideas that came from this meeting in a concise manner.  They are divided into four areas as follows: (1) Observations regarding today’s workforce; (2) Forces impacting the relocation industry; (3) Current trends within the relocation industry, and; (4) Projected future trends.  Observations Regarding Today’s Workforce        The work place is more challenging as a result of trying to meet the varied and diverse needs of baby boomers, Gen-X’ers and Gen-Y’ers, and recent college grads.        The labor pool is shrinking and that will continue as more baby boomers reach retirement age.        The current labor force is generally well trained and very tech savvy.        There are more “free agents” in the labor force meaning that loyalty is becoming less of an issue and turnover a greater problem.        Due to offsite employment, employees are working side-by-side and may never see each other. Forces Impacting the Relocation Industry        There is an information overload.  In fact, there appears to be more information than most relocation professionals, employers or transferring employees need or can use.        Expectations for 24/7 responses are abundant but may not be necessary or may not represent actual demand.        It is becoming more difficult to determine who is who in the relocation process and, as a result, who is responsible for what functions.        Aging relocation industry professionals are retiring and taking their years of knowledge and experience with them. Current Trends Within the Relocation Industry        Following the recession, the volume of relocations has, on average, increased.        As a result of emerging markets and demand for skilled employees, global mobility is increasing.        Surveys of CEO’s reveal an increasing confidence in growth expectations resulting in increases in capital investments.        Appreciation of real estate and softening real estate markets are causing relocation costs to remain high with the expectation that they will continue to increase.        There is a continuing increase in the number of female transferring employees.        Today, fewer than 50% of relocations involve promotions.        There is an increase in the use of relocation policies that are tiered based upon the transferring employees pay scale or grade of employment. Projected Future Trends        The number of new employee sectors, “free agents” and virtual employees, will continue to increase.        As the number of “free agents’ increases, we may see an increase in those who work for multiple employers.        Partnerships between employers and universities will intensify as the demand for skilled labor and need for research assistance increases.        The use of unbundled and negotiable relocation policies will develop as a tool in the war for talent.        Considering age, gender, and other criteria, transferring employee’s relocation benefit programs will allow for more personal choice thereby increasing the use of cafeteria style policies. It is my hope that the above information is useful and of interest to you.  Additionally, Atlas World Group has been kind enough to provide the enclosed Corporate Relocation Survey for 2006.  This is not an endorsement of their services but is provided because CRG believes it to also be useful information. Sincerely, Gregory S. Hutchins, CRP, GMS President/CEO Return to the top     Revenue Ruling 2005-74 While attending presentations by Pete Scott, ERC Tax Counsel, and Dick Mansfield, ERC Legal Counsel, at the Worldwide ERC 2005 Global Workforce Symposium, it became apparent that each had become exasperated with the IRS.  In particular, they noted the IRS’s lack of response to over 30 years of requests to more clearly define their position regarding taxability of Appraised Value and Amended Value transactions.  Finally, late on the afternoon of November 30th, our industry received Revenue Ruling 2005-74 from the IRS – and it appears to be an unqualified endorsement of our present method of operation. The essence of the ruling is that Appraised Value transactions and Amended Value transactions need not be considered taxable income to the transferring employees if the 11 key elements developed by the ERC are followed.  The Buyer Value Option was not specifically addressed in the ruling.  However, experts agree that the decision regarding the Amended Value transaction provides substantiation to the Buyer Value Option due to the fact that the only difference between the two programs is the initial offer.  Enclosed you will find a copy of Revenue Ruling 2005-74 as well as a brief analysis prepared by Pete Scott. As you will see in the ruling, three situations for providing relocation benefits have been presented.  The first two address an Appraised Value transaction and an Amended Value transaction.  In each, the IRS rules that the expenses associated with each of the two situations is not taxable income to the transferring employee based upon the assumption of the “benefits and burdens” of home ownership assumed by the employer or their relocation management service company. The third situation sets forth a transaction in which the IRS considers the relocation expenses as being taxable income to the transferring employee.  This is a result of the employer not assuming sufficient “benefits and burdens” of ownership.  The three specific points that create this seem to be: The purchase agreement between the transferring employee and the employer or relocation management company is contingent upon them successfully entering into a sales contract with the outside buyer.   The transferring employee is totally responsible for negotiating the employer’s or relocation management company’s sale with the outside buyer.   Equity is not paid to the transferring employee until the sale with the outside buyer closes. In essence, these three situations provide the IRS field agents templates to use when considering whether or not a company’s relocation benefit program is to be considered favorable or unfavorable. One other issue that was of some surprise is the position of the IRS that an employer or their relocation management company need not take title to the homes purchased from transferring employees.  In both the Appraised Value transaction and the Amended Value transaction, the single blank deed scenario was used and met the “benefits and burdens” of ownership test.  However, this endorsement does not change the recommendation of the ERC Board of Directors that a two deed process should be employed. In the estimation of Carolina Relocation Group, Revenue Ruling 2005-74 is a resounding win for the relocation industry.  It sets forth a clear understanding of the rules regarding treatment of relocation expenses as taxable income, provides a “safe harbor” for past and present programs that conform to the IRS’s model, and gives a blueprint for future relocation programs.  We hope that this information is useful to you.  While we are not tax experts, we believe that it is important to keep you abreast of developments which might affect your relocation benefit programs.  Should you have any questions, please feel free to contact me directly. Sincerely, Gregory S. Hutchins, CRP, GMS President/CEO Return to the top     Past and Present Mold Issues The issue of mold is becoming increasingly more significant in today's environment.  Media and high profile cases are influencing the public's perception.  Due to the legal precedence set by the courts across the United States, it is important for Carolina Relocation Group, to address this issue when acquiring and selling the homes of all relocating employees. Mold exists everywhere, in our offices, homes and in the air that we breathe.  Mold can be as simple as the mold that grows in the grout of the shower or as problematic as concentrated infestation that can trigger asthma and allergic reactions in sensitive individuals. CRG cannot buy a home that does not have mold.  Therefore, prior to buying a transferee's home our objectives are: 1) to determine if there has been or is currently a mold infestation problem, and; 2) to have any mold infestation issues remediated prior to purchase. We have recently modified the CRG Homeowner's Property Questionnaire as well as our Broker Price Opinion form to include questions that would reveal a prior or current problem with moisture or mold infestation.  Relocating employees must complete the CRG Homeowner's Property Questionnaire.  In effect, this document is our disclosure form.  The relocating employee must divulge the condition of their home to CRG prior to our purchase.  Full disclosure is a mandatory process in most states.  The seller and the real estate broker must disclose any and all material facts.  This disclosure includes information that they know or reasonably should have known. Our Contract of Sale has also been updated.  The new language combined with the disclosure documents will protect your company against any substantial costs associated with remediation or liability for health issues associated with mold. For clients that require a general home inspection, we review the inspector's reports for any indication of prior moisture leaks that could result in mold infestation or a current mold issue.  We do not believe that we need to concern ourselves with sophisticated and expensive testing of air samples or the use of other highly invasive and destructive testing. CRG's belief is that visible mild infestation found prior to the home purchase is an item of repair.  As a result, it will be CRG's policy, to hold the relocating employee responsible for remediation.  They may choose to do the remediation themselves or have CRG withhold funds from their final equity to have remediation completed. In our Listing Agreement Addendum with real estate brokers nationwide, CRG has included a set of instructions to combat the growth of mold in our inventory homes.  We believe that these actions are sufficient to protect against concentrated mold infestation during the time that homes are in our inventory. Sincerely, Gregory S. Hutchins, CRP, GMS President & CEO Return to the top     CLUE DATABASE I recently attended the 28th Annual Paul Taylor Relocation Conference in Boston.  The conference does not draw the attendance that ERC's conferences enjoy.  However, its smaller meetings, sharper focus on popular topics, presentation targeted to highly experienced relocation professionals, and a cadre of speakers who are well versed in their areas of expertise make it highly informative and useful. Several of the sessions dealt with refinements to the relocation process that CRG will adopt and implement in the near future.  We will notify you at a later time as to what those changes are and how they will enhance our services to you.  However, one subject that I spent considerable time investigating was the Comprehensive Loss Underwriting Exchange (CLUE). CLUE is a database of personal property information relating mainly to insurance claims on auto and home losses.  CLUE is used by insurance companies to screen applicants and review new policies as well as policies up for renewal.  The company that owns and manages the CLUE database, ChoicePoint, compares CLUE to a credit report.  Insurance companies use CLUE to identify and screen consumers who file fraudulent and frequent claims reports.  There are other insurance loss databases but none as large or as widely used.  To give you an idea of size, the CLUE database contains\s about 40 million claims records on homes in every state for claims filed in the last five years in regard to damage caused by water, wind, fire, etc.  Under the Federal Fair Credit Act (FCRA), ChoicePoint may only furnish reports to entities that it believes will use the information for underwriting purposes related to the individual consumer whose report was requested.  In other words, CLUE is used to find out information about the consumer and the residence to be covered. A CLUE report sorts by person or property, details the "claim history" of a given consumer or a given property, and also identifies parties that have received a copy of the report over the last two years.  Approximately, 90% of American insurance companies participate in this service. The question is how does CLUE affect corporate relocation and what can be done about the affects? The biggest affect is that many real estate contracts, including the CRG Contract of Sale, used when a home is purchased require that the seller (transferring employee) warrant that the home they are selling is insurable under standard rates. Natural disasters have occurred in extraordinary numbers in the 1990's and early 2000's.  Disasters include hurricanes, mold claims, September 11th, and the decline of the stock market.  Insurance companies have responded by discontinuing providing insurance in high risk states, increasing premiums, and tightening underwriting guidelines.  A CLUE report plays a big part in determining the insurability and the rate at which a home is insured. In relation to relocation, if the home that CRG is buying from the transferring employee has a history of numerous claims that are revealed in a CLUE report, the home may not be insurable at standard rates.  Additionally, after the home has been sold and taken off the market, the buyer may not qualify for standard rates as a result of claims history from previous homes that they have owned. To date CRG has been fortunate in the fact that no homes purchased have had a substantial enough claim history to warrant insurance at anything but standard rates.  Nor have we had the circumstance where a home that we have sold has been denied insurance at standard rates because of the claims history of the purchaser.  However, we will continue to monitor these circumstances. If the time should come when we find difficulty in buying homes or selling homes to buyers that do not qualify for standard insurance rates, we anticipate taking some or all of the following actions: Advise you to revise your relocation policies to disqualify transferring employee's homes from the home sale/ home purchase benefit that are not insurable under standard rates. Educate transferring employees using literature in their relocation packages about the effect of CLUE reports on the insurability of their homes. Require transferring employees to disclose all insurance claims before an offer is made by CRG. Require buyers to provide proof of their ability to obtain homeowners insurance before CRG accepts their offer to buy a home. My point in bringing this issue to your attention is not to alarm you.  It is to make you aware that CRG continues to uncover issues that could be of concern in the future and assure you that we are proactive in designing provisions to protect you. As always, it is our pleasure to serve you. Sincerely, Gregory S. Hutchins, CRP, GMS President & CEO   Return to the top     Amdahl v. Commissioner, 108 T.C. 507 As you may know, I was out of the office while attending the Worldwide ERC's Global Workforce Symposium in Washington, DC.  The focus of the symposium is to bring together workforce mobility professionals from around the world to network with industry professionals, to identify the latest trends, and to learn new skills.  Approximately 1,530 registrants gathered for the two and one-half day meeting. The education sessions are divided into those that are international in focus and U.S. domestic in focus and are available to those who hold the Certified Relocation Professional (CRP) designation and corporate relocation managers.  In addition to fulfilling my continuing professional educational requirements as a CRP, I have come to view the symposium as a necessary investment that will benefit all of CRG's clients. While many of the highlights from the symposium have broad application to many of our clients, I also picked up ideas that may have application to only a few of our client, and I will contact you individually to discuss them.  The presentation that regularly draws the largest attendance and creates the greatest amount of discussion is the Tax and Legal Update presented by Pete Scott, ERC Tax Counsel, and Dick Mansfield, ERC General Counsel. The greatest concern, once again, is with the IRS and their employment tax auditor's interpretation of the 1997 decision in Amdahl v. Commissioner, 108 T.C. 507.  The IRS has never taken an official position regarding this case but the IRS employment tax auditors have remained aggressive in their belief that all expenses and losses in home purchase programs are taxable to employees.  In every case where this is an issue, the IRS auditors have focused on the blank deed process to transfer title as the principle factor. It is apparent that this IRS trend will become an official IRS position unless the IRS loses a court case or the relocation industry is able to persuade Washington to change their thinking.  To that end, the Large & Mid-Size Business Division of the ORS has prepared a "Coordinated Issue Paper" (CIP) which is their first step toward formally applying the Amdahl position to all audits.  ERC has obtained a copy of the CIP for comment and will respond by December 6th.  The initial analysis was positive regarding the costs associated with regular home purchases being treated as corporate expenses and even included the approval of the blank deed process.  However, erroneous factual assumptions, misconceptions, and misunderstandings were presented regarding amended value sales.  ERC will provide their analysis and clarification when they respond to the IRS. Since 2001, ERC has pursued a resolution of this issue with the National Office of IRS.  ERC successfully persuaded the IRS Office of Chief Counsel to add the issue to their 2003-2004 Priority Guidance Plan which is the list of projects to be completed by the fiscal year which ended June 30, 2004.  While this was not accomplished, the issue has been continued to the 2004-2005 Priority Guidance Plan.  ERC has recently written to senior IRS officers to ask that the CIP be withdrawn as it is viewed as inconsistent with and duplicative of the Priority Guidance Plan. The good news for you is that on January 1, 2002 CRG began using the two deed process to purchase your transferring employee's homes.  The audit experience of companies that have adopted the two deed process has been that this process was helpful, and in some cases eliminated the issue. In other words, the IRS employment tax auditors have either dropped the issue for past years or settled it favorably, based upon the companies adoption of the two deed structure in the future. We will keep you updated as this issue unfolds in the future.  If you should have any questions, please feel free to call. Sincerely. Gregory S. Hutchins, CRP, GMS President & CEO  Return to the top