EisnerAmper Blog

April 9, 2013

If the U.S. Supreme Court strikes down the Defense of Marriage Act, many same-sex couples could be in for substantial tax windfalls. EisnerAmper Partner Ken Weissenberg, CPA, was recently interviewed by CNNMoney for an article outlining how the financial landscape for same-sex couples could change—both for the future and prior years. Couples who were already married under certain jurisdictions may qualify for refunds of estate, gift or income taxes going back to 2009.  Protective claims for refunds must be filed by the later of three years of the due date of your tax return (including extensions) or two years from when you paid tax for the year in order to be able to preserve your rights to a refund. You can find out more about the potential financial windfalls for these couples here .

By Rich Sackin CPA, Shawn Carson CPA, Nicolas Stavrinides, PKF Savvides & Co. Ltd., Christos Antoniou, PKF Savvides & Co. Ltd.

Banks in Cyprus reopened yesterday after two weeks and under tight security. However, as summarized by EisnerAmper LLP on March 25 and March 27, there remains continued uncertainty as to additional tax changes that the agreement will necessitate.

Cyprus has been a huge concern to EU members because of its lax banking laws and low tax rates. Considerations for a Cypriot company could include redomiciling to a jurisdiction such as The Netherlands, since The Netherlands as well as Cyprus have favorable redomiciliaton legislation.

Separately, Cyprus’s money transfer controls may slow deposit withdrawals by businesses and investors; however, the threats of taxes, levies and now the conversion of large deposits into Bank of Cyprus equity will cause foreign money to very likely go elsewhere, resulting in a significant shrinkage of the economy. Countries from Argentina to Iceland have used similar measures in the past to defend against the devaluation of their own currency; however, as a member of the Eurozone, it will be harder for Cyprus to enforce money transfer controls since any money that leaves the Cypriot banking system can be withdrawn without losing value.

European Commission Vice President Olli Rehn, through a spokesperson, noted that the cases of Cyprus and Greece do not have common points, therefore striving to assure that there would not be a similar decision for Greece as there was for Cyprus. This comment helps to calm Eurozone countries over concerns related to the comments on March 25 by Eurogroup President Jeroen Dijsselbloem stating the decision on Cyprus could become a model for other Eurozone countries. Rehn’s comments cited that the Greek crisis, unlike the Cypriot one, did not begin in the banking sector, which in Greece is much smaller and only twice the size of the country`s GDP compared to the case of Cyprus where the banking sector is eight times its GDP.  Rehn’s comments also cited Greece’s significantly improved supervision of its banks, and more secure and careful administration.

EisnerAmper LLP continues to monitor the situation in Cyprus and the Eurozone and will provide observations as appropriate, including comments from the European Commission, the Government of Cyprus, PKF Cyprus (an independent member of PKF International Limited) and global financial news organizations. Investors need to continue to exercise caution with investments in and exposure to the Eurozone and review their asset allocation model, investment policy statement, and risk tolerance.

This Outline is not intended to be a comprehensive analysis of the Cyprus bailout plan agreement (“the agreement”), but is a summary of the agreement’s more significant provisions as presently known. We advise you to contact your tax and investment and financial planning advisors to discuss how specific provisions of the agreement will impact your tax, investment, business, and financial planning objectives and fact pattern. The information in this Outline should not be relied upon as, nor intended to provide, investment or tax or economic advice. This Outline also does not provide investment or tax or other advisory services. EisnerAmper LLP is a certified public accounting firm and is an independent member of PKF International Limited.

March 27, 2013

By Rich Sackin CPA, Shawn Carson CPA, Nicolas Stavrinides, PKF Savvides & Co. Ltd., Christos Antoniou, PKF Savvides & Co. Ltd.  

As summarized by EisnerAmper LLP on March 25, Cyprus has agreed to a deal with the European Union (EU) and the International Monetary Fund (IMF) to secure a 10bn euro bailout. With the agreement, Cyprus will adopt a significant restructuring of its banking sector, along with other measures such as limited tax increases and privatizations. The measures are designed to raise 5-6 billion euros to fund the bailout, and protect bank customers with deposits of 100,000 euros or less. The measures cannot be voted down by Cyprus's parliament.

Under the agreement, Cyprus's second largest bank - Laiki Bank - will be closed down and deposits above 100,000 euros moved into a new "bad bank". Deposits below 100,000 euros will be moved into Bank of Cyprus, the country's biggest bank, which is being significantly restructured. Deposits at Bank of Cyprus of more than 100,000 euros are being frozen.

For all deposit in excess of 100,000 euros, the government will determine how much of a haircut on the deposits will be applied, which could result in a 30%-50% loss by depositor’s in Bank of Cyprus. Depositors in the Bank of Cyprus with amounts above 100,000 euros will be given Bank of Cyprus shares in exchange of the loss suffered.

Compared to the one-time bank levy on deposits as cited in the EU-IMF deal last week, there is no levy in the new deal, however the bank restructuring measures means deposits over 100,000 euros will effectively be used to pay the bulk of the 5.8bn-euro bill, which will then be applied against the total bailout cost of 10bn euros.

Although the haircut has been referred to as a tax, it will not likely be considered a creditable income tax for U.S. tax purposes. And, as part of the agreement Cyprus also intends to increase the corporate rate from 10% to 12.5%.

At this time there remains uncertainty as to additional tax changes that the agreement will necessitate, although private investors with accounts in Cyprus certainly are closely reviewing the current and long term financial climate, as are corporate entities doing business and or domiciled in Cyprus.

We will continue to monitor the situation in Cyprus and the Eurozone and provide observations as appropriate. Investors need to continue to exercise caution with investments in, and with exposure to, the Eurozone and review their asset allocation model and compare to their investment policy statement and risk tolerance and include additional considerations.

This Outline is not intended to be a comprehensive analysis of the Cyprus bailout plan agreement (“the agreement”), but is a summary of the agreement’s more significant provisions as presently known. We advise you to contact your tax and investment and financial planning advisors to discuss how specific provisions of the agreement will impact your tax, investment, business, and financial planning objectives and fact pattern. The information in this Outline should not be relied upon as, nor intended to provide, investment or tax or economic advice. This Outline also does not provide investment or tax or other advisory services. EisnerAmper LLP is a certified public accounting firm and is an independent member of PKF International Limited.

CLICK HERE FOR PART 1: Cypriot Bank Bailout Taking Shape: Extremely Fluid Situation Bears Close Scrutiny 

 

March 25, 2013

Timothy Speiss, MST, CPA, PFS 

While many details need to be disclosed, including Cyprus bank deposit holders’ liquidity, international lenders reached a deal with Cyprus this morning (March 23, 2013) on a €10 billion bailout deal that would prevent the collapse of its banking system and keep the country within the Eurozone.

Cyprus needs to find a way to raise nearly €6 billion to satisfy the conditions of a €10 billion EU rescue or face meltdown when banks reopen Tuesday after a 10-day hiatus. As part of the deal, it has been reported that Cyprus has agreed to close its second largest bank (Cyprus Popular) and shrink its banking system overall.

As cited today by the Council on Foreign Relations, the amended deal comes a week after the Cypriot parliament rejected a proposed bank levy on small and large deposits, avoids the controversial levy on small bank accounts. The deal however will force large losses on big deposits in the Island's two largest lenders, Bank of Cyprus and Cyprus Popular.  A plan to resolve the challenges facing Laiki Bank is also in the works. 

It should be noted that the Cypriot banking sector holdings, including foreign deposits, is 8-times larger than the total economic output of the nation itself, which was $25 billion at YE 2011.  Cyprus has a population of just 860,000.

The new deal will not be put to a vote in the Cypriot parliament.

It also appears to many commentators that after such a severe blow to its lucrative banking sector, Cyprus will be pushed into a harsh recession. Some sources in the Troika - the International Monetary Fund, the European Commission and the European Central Bank - tentatively estimate that Cypriot GDP will shrink by about 10% before any hope of recovery. Perhaps the biggest question is this, writes The Economist, “Once the banks have been cleaned up and shrunk, where will Cyprus find economic growth?" Our observation is that tax rate reductions in Cyprus could create growth; however structural change is necessary to reduce social costs and increase job formation.

"Cyprus's economy is going to suffer greatly over the next few years, and its citizens are going to blame Europe for their woes; it's entirely possible that they will voluntarily leave the Euro, if the alternative is negative economic growth as far as the eye can see, along with a massively overvalued currency," writes Felix Salmon for Reuters.

We will continue to monitor the situation in Cyprus and the Eurozone and provide observations as appropriate. Investors need to continue to exercise caution with investments in, and with exposure to, the Eurozone and review their asset allocation model and compare to their investment policy statement and risk tolerance and include additional considerations.

 CLICK HERE FOR PART 2 

March 22, 2013

By Timothy Speiss, CPA

Communicating details about inheritances to children, such as dollar amounts, dates, and the ins-and-outs about trusts, should be done on a case-by-case basis. Each discussion is different; and conventional wisdom is that the parents know best when the children should be informed as to the specifics of a family’s wealth.

In my experience, clients often avoid discussing these matters with children younger than 18, and often through their early 20s. Most parents simply do not view such discussions as necessary, and are concerned that an incomplete or immature understanding could impede their child's work /school ethic, or their level of desire and focus on self-development.

For example, we know of some very wealthy but practical parents who were asked by their adolescent child, (who had been told of his wealth by schoolmates), "Are we rich?"  The parents responded, “Do you live in a nice home? Do you feel loved by Mom and Dad? Do you have everything you need?” To each question the child responded “Yes.” The parents then said, "Well then, you’re rich." The point is, the parents truly wanted to avoid (as it was unnecessary) citing dollar amounts and more specific details.

On the other hand, we work with a family group comprised of a senior family member and the next generation of adult children, who collectively own stock in a very large, valuable, and successful company. The family has never shied from discussion of the source of their income, or the effort they spend on company matters. The adult children have been in the business since graduating from college and understand the family's wealth and the value of the stock in the company.

Over many years, the senior family member has transferred a large share of stock in the company to each adult child and grandchild. The stock transfers have been a culmination of a thoughtful, multi-year estate and business succession plan, in conjunction with mentoring and management training. This example is more typical of a long-term process to educate heirs as to how they will receive a share of the family wealth and how to properly manage family assets over a long-term horizon.

March 19, 2013

By Timothy Speiss, CPA

U.S. Treasury Secretary Jacob Lew is in China for talks on March 19 and 20 with China's new leadership; it is Secretary Lew’s first international trip since taking office. During his China visit, Secretary Lew will also meet with U.S. business leaders.

Treasury said that Secretary Lew’s meeting with Chinese leaders and senior economic officials will focus on the bilateral relationship and opportunities for cooperation and growth. Other objectives include efforts to level the playing field and create new opportunities for workers and businesses; as well as to focus on highlighting the importance of the U.S.-China economic relationship and establish ties with China’s new leadership.

Entering 2013, China's manufacturing industry showed further improvement compared to 2012. At the end of 2012, the initial Chinese purchasing managers' index, or PMI, rose to a 13-month high of 50.4 in the 2012 fourth quarter, possibly indicating a state of accelerated expansion. Chinese exports soared beyond forecasts to rise by 20% in February 2013 from the level of a year ago, as data from China’s General Administration of Customs showed March 8, a sign that the country’s modest economic revival is intact and a suggestion that global demand might also be on the mend. China’s exports rose 21.8% in February 2013 from a year earlier. A Reuters poll of 22 economists had forecast that February exports would grow 10.1%, while imports would fall 8.8%. Export growth to the United States was the strongest in a year, and export growth to the euro zone the strongest in 18 months.

As the global economic recovery continues to gain momentum, it is still in the early stages and global economic growth remains fragile, which could impact future growth in Chinese manufacturing. China's economy has grown at an average of around 10% a year for the past three decades, allowing the country to accelerate past international competition to become the world's second largest economy. China's markets have opened to the rest of the world, trade has increased dramatically and many of China's citizens have joined an emerging middle class.

Accordingly, Secretary Lew’s discussions this week most likely will include a balanced trade and commerce policy between the U.S. and China, which would appear to be of benefit to the global economy.

November 15, 2012

By:  Tim Speiss 

Recently, the Miami Marlins traded Jose Reyes to the Toronto Blue Jays. The tax ramifications of the trade could be staggering. As part of our ongoing look at the effects of domicile and residence on taxation and financial planning, the tax professionals of EisnerAmper LLP wrote an article on the affect of the trade on the tax treatment of Mr. Reyes and his income. Read article: Income Tax Consideration-How Much Does It Cost be a Toronto Blue Jay.