What Is an Appraisal Management Company (AMC)?

An Appraisal Management Company (AMC) is an independent entity through which mortgage lenders order residential real estate valuation services for properties on which they are considering extending loans to homebuyers.

AMCs fulfill an administrative function in the appraisal process, including selecting an appraiser and delivering the appraisal report to the lender. Individual appraisers who work for AMCs provide the actual property valuation services.

Understanding Appraisal Management Companies (AMC)

AMCs have been a part of the real estate landscape for the past 50 years. However, their numbers remained limited until the financial crisis of 2007 to 2008.

In 2009, the New York Attorney General, government-sponsored enterprises Freddie Mac and Fannie Mae, and the Federal Housing Finance Agency (FHFA) established the Home Valuation Code of Conduct (HVCC) appraisal guidelines. The HVCC guidelines, no longer on the books, laid the foundation for the appraiser independence found in the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Truth in Lending Act. Laws obligating lenders to use independent appraisers led to a sharp rise in the use and number of AMCs.

The HVCC and later federal regulation sought to limit the amount of direct contact that lenders could have with appraisers. Essentially, the U.S. federal government created appraiser independence requirements to prevent lenders from influencing appraisers to inflate property values, a problem believed to have contributed to the housing crisis.

With an AMC, mortgage brokers, loan officers, nor homeowners may select the appraiser for the property on which they want to lend/borrow funds. Since the former parties have a financial interest in the transaction, there is a risk they might attempt to influence the appraiser to assign a higher value to the property than market conditions support so the transaction will go through.

Appraisal Management Company (AMC) Requirements

AMCs maintain a pool of state-licensed or state-qualified appraisers to meet requests from lending institutions. An appraiser is then assigned to provide an appraisal report for the property.

AMC appraisers are not provided with any prior information regarding the property or put in contact with the lending institution. The appraiser’s assessment must meet the Uniform Standards of Professional Appraisal Practice (USPAP) guidelines. If there are any issues, the AMC can legally assist.

What Is an Activist Investor?

An activist investor, typically a specialized hedge fund, buys a significant minority stake in a publicly traded company in order to change how it is run.

The activist investor’s goals may be as modest as advising company management or as ambitious as forcing the sale of the company, divestitures or restructuring, or replacing the board of directors.

Unlike private equity firms that buy and restructure companies in order to profit when they are resold, activist investors seldom acquire full or majority stakes. Instead, they use public communications and private discussions to win over other shareholders and company insiders. When such efforts fail, an activist investor may pursue a proxy contest to elect new directors in order to force the company to meet their demands.

Understanding Activist Investors

Activist investors are sometimes called shareholder activists, a term also used to describe those lobbying companies to improve working conditions for the overseas employees of their contractors, or backers of a dissident board slate elected to fight climate change.

However, many activist investor campaigns seek only to maximize shareholder value, and most of those are the work of hedge funds specializing in the unique mix of public pressure, behind-the-scenes lobbying, and business expertise required.

Unlike the public pension funds and mutual funds that also engage in activism at times, activist hedge funds may hold highly concentrated stakes and supplement them with additional leverage from derivatives like stock options to offset the considerable cost of such campaigns. In contrast with institutional investors that sometimes turn to activism after owning a disappointing investment for years, activist hedge funds typically buy a stake in an underperforming company shortly before calling for change, and hope to profit from the resulting turnaround and price appreciation.

In contrast to institutional investors, activist hedge funds are also more willing to use confrontational tactics, from poison-pen letters to management and unflattering public reports to proxy fights seeking to oust incumbent directors.

How Activist Investors Make Their Case

Investor activists often announce their campaigns by filing a Schedule 13D form with the U.S. Securities and Exchange Commission (SEC), which must be filed within 10 calendar days of acquiring 5% or more of a company’s voting class shares.

Qualified institutional investors and passive investors, meaning those not trying to acquire or influence control of the company, may instead file a simplified Schedule 13G with less stringent disclosure requirements and thresholds. Schedule 13D filers must disclose, among other facts, their reasons for acquiring the stake and any plans they may have for the company in terms of mergers and acquisitions, asset disposals, capitalization or dividends, or other policies.

The initial 13D filing gives the activist investor a golden opportunity to publicize their case for change at the targeted company. At the same time, the filing curtails the activist’s ability to alter their stake in, and plans for, the company out of the public eye. Any changes to the facts disclosed on a Schedule 13D must be reported in an amended filing “promptly,” under current SEC rules.

Activist investors may use amended Schedule 13D filings to comment on a company’s response to their proposals. For example, when Netflix, Inc. (NFLX) adopted a poison pill after funds affiliated with Carl Icahn reported a stake of nearly 10% in the video streaming company, the funds filed an amended disclosure calling the poison pill “an example of poor corporate governance.” Activist investors may also write sharply worded letters to incumbent managers, issue press releases arguing their case to other shareholders, or privately lobby institutional investors to side with them.

The Future of Shareholder Activism

There has been a claim that “activism is dying,” lamented Carl Icahn in May 2022, contrasting the legendary investor’s few-holds-barred approach seen in the past. Some have feared the changes proposed to the Schedule 13D disclosure requirements in 2022 constitute a pressing threat, with Elliott Investment Management stating publicly that the proposed rules “will virtually shut down activism.”

In February 2022 the SEC had proposed shortening the initial Schedule 13 filing deadline from 10 calendar days to 5, with amendments due within a day of a material change rather than “promptly” as currently. The proposal, if passed, would effectively force 13D filers to specify holdings of derivatives (such as options) that confer an economic interest in the company without the shareholder rights associated with an outright stock position. Perhaps more controversially, the proposed rules would no longer require investors to agree to act in concert and be designated a single group by the SEC for Schedule 13D reporting purposes. Rules have also been proposed to make it harder for activist shareholders to squash a company’s environmental or other pro-ESG initiatives.

SEC Chair Gary Gensler argued the stepped up requirements proposed would address “an information asymmetry” between activist investors and other shareholders. Critics countered the proposed rules would make activism unprofitable by making it more difficult and costly for activist investors to accumulate significant stakes, while inhibiting communication among shareholders.

Despite these proposed rule changes, shareholder activism does not seem to be slowing down (at least, not yet). For example, activist investor Nelson Peltz reportedly made a profit of more than $150 million by acquiring shares of Disney (DIS) in November 2022, in a move that prompted a proxy fight against the returning CEO, Bob Iger; however, this brief fight was called off after Iger announced a restructuring plan that is expected to save the media giant $5.5 billion in costs and cut 7,000 employees. Peltz has expressed satisfaction with the company’s direction and decision to make changes, praising Iger and his management team. In early 2023, ValueAct Capital Management, a San Francisco-based activist hedge fund, took a stake in streaming media company Spotify Technology SA (SPOT), with the goal of cutting costs and streamlining management. ValueAct has also disclosed a major position and board seat in SalesForce (CRM), which now has no less than five large activist investor shareholders on board with long positions, resulting in early 2023 cost cutting measures that include layoffs of 10% of the company’s employees. In all three of the these examples, markets have reacted positively to the inclusion of activist shareholders, seeing their share prices afterwards outperform.

What Is an Accounting Standard?

An accounting standard is a common set of principles, standards, and procedures that define the basis of financial accounting policies and practices.

Understanding Accounting Standards

Accounting standards improve the transparency of financial reporting in all countries. In the United States, the generally accepted accounting principles (GAAP) form the set of accounting standards widely accepted for preparing financial statements. International companies follow the International Financial Reporting Standards (IFRS), which are set by the International Accounting Standards Board and serve as the guideline for non-U.S. GAAP companies reporting financial statements.

The generally accepted accounting principles are heavily used among public and private entities in the United States. The rest of the world primarily uses IFRS. Multinational entities are required to use these standards. The International Accounting Standards Board (IASB) establishes and interprets the international communities’ accounting standards when preparing financial statements.

Accounting standards relate to all aspects of an entity’s finances, including assets, liabilities, revenue, expenses, and shareholders’ equity. Specific examples of accounting standards include revenue recognition, asset classification, allowable methods for depreciation, what is considered depreciable, lease classifications, and outstanding share measurement.

The American Institute of Accountants, which is now known as the American Institute of Certified Public Accountants, and the New York Stock Exchange attempted to launch the first accounting standards in the 1930s. Following this attempt came the Securities Act of 1933 and the Securities Exchange Act of 1934, which created the Securities and Exchange Commission. Accounting standards have also been established by the Governmental Accounting Standards Board for accounting principles for all state and local governments.

Accounting standards specify when and how economic events are to be recognized, measured, and displayed. External entities, such as banks, investors, and regulatory agencies, rely on accounting standards to ensure relevant and accurate information is provided about the entity. These technical pronouncements have ensured transparency in reporting and set the boundaries for financial reporting measures.

U.S. GAAP Accounting Standards

The American Institute of Certified Public Accountants developed, managed, and enacted the first set of accounting standards. In 1973, these responsibilities were given to the newly created Financial Accounting Standards Board. The Securities and Exchange Commission requires all listed companies to adhere to U.S. GAAP accounting standards in the preparation of their financial statements to be listed on a U.S. securities exchange.

Accounting standards ensure the financial statements from multiple companies are comparable. Because all entities follow the same rules, accounting standards make the financial statements credible and allow for more economic decisions based on accurate and consistent information.

Financial Accounting Standards Board (FASB)

An independent nonprofit organization, the Financial Accounting Standards Board (FASB) has the authority to establish and interpret generally accepted accounting principles (GAAP) in the United States for public and private companies and nonprofit organizations. GAAP refers to a set of standards for how companies, nonprofits, and governments should prepare and present their financial statements.

What Is the 183-Day Rule?

The 183-day rule is used by most countries to determine if someone should be considered a resident for tax purposes. In the U.S., the Internal Revenue Service (IRS) uses 183 days as a threshold in the “substantial presence test,” which determines whether people who are neither U.S. citizens nor permanent residents should still be considered residents for taxation.

Understanding the 183-Day Rule

The 183rd day of the year marks a majority of the days in a year, and for this reason countries around the world use the 183-day threshold to broadly determine whether to tax someone as a resident. These include Canada, Australia, and the United Kingdom, for example. Generally, this means that if you spent 183 days or more in the country during a given year, you are considered a tax resident for that year.

Each nation subject to the 183-day rule has its own criteria for considering someone a tax resident. For example, some use the calendar year for its accounting period, whereas some use a fiscal year. Some include the day the person arrives in their country in their count, while some do not.

Some countries have even lower thresholds for residency. For example, Switzerland considers you a tax resident if you have spent more than 90 days there.

The IRS and the 183-Day Rule

The IRS uses a more complicated formula to reach 183 days and determine whether someone passes the substantial presence test. To pass the test, and thus be subject to U.S. taxes, the person in question must:

• Have been physically present at least 31 days during the current year and;
• Present 183 days during the three-year period that includes the current year and the two years immediately preceding it.

Those days are counted as:

• All of the days they were present during the current year
• One-third of the days they were present during the previous year
• One-sixth of the days present two years previously

Other IRS Terms and Conditions

The IRS generally considers someone to have been present in the U.S. on a given day if they spent any part of a day there. But there are some exceptions.

Days that do not count as days of presence include:

• Days that you commute to work in the U.S. from a residence in Canada or Mexico if you do so regularly
• Days you are in the U.S. for less than 24 hours while in transit between two other countries
• Days you are in the U.S. as a crew member of a foreign vessel
• Days you are unable to leave the U.S. because of a medical condition that develops while you are there
• Days in which you qualify as exempt, which includes foreign-government-related persons under an A or G visa, teachers and trainees under a J or Q visa; a student under an F, J, M, or Q visa; and a professional athlete competing for charity

U.S. Citizens and Resident Aliens

Strictly speaking, the 183-day rule does not apply to U.S. citizens and permanent residents. U.S. citizens are required to file tax returns regardless of their country of residence or the source of their income.

However, they may exclude at least part of their overseas earned income (up to $108,700 in 2021) from taxation provided they meet a physical presence test in the foreign country and paid taxes there. To meet the physical presence test, the person needs to be present in the country for 330 complete days in 12 consecutive months.

U.S. Tax Treaties and Double Taxation

The U.S. has tax treaties with other countries to determine jurisdiction for income tax purposes and to avoid double taxation of their citizens. These agreements contain provisions for the resolution of conflicting claims of residence.

Residents of these partner nations are taxed at a lower rate and may be exempt from U.S. taxes for certain types of income earned in the U.S. Residents and citizens of the U.S. are also taxed at a reduced rate and may be exempt from foreign taxes for certain income earned in other countries. It is important to note that some states do not honor these tax treaties.

183 Day Rule FAQs 

How Many Days Can You Be in the U.S. Without Paying Taxes?

The IRS considers you a U.S. resident if you were physically present in the U.S. on at least 31 days of the current year and 183 days during a three-year period. The three-year period consists of the current year and the prior two years. The 183-day rule includes all the days present in the current year, 1/3 of the days you were present in year 2, and 1/6 of the days you were present in year 1.

How Long Do You Have to Live in a State Before You’re Considered a Resident?

Many states use the 183-day rule to determine residency for tax purposes, and what constitutes a day varies among states. For instance, any time spent in New York, except for travel to destinations outside of New York (e.g., airport travel), is considered a day. So, if you work in Manhattan but live in New Jersey, you may still be considered a New York resident for tax purposes even if you never spend one night there.

It is important to consult the laws of each state that you frequent to determine if you are required to pay their income taxes. Also, some states have special agreements whereby a resident who works in another state is only required to pay taxes in the state of their permanent residence—where they are domiciled.

How Do I Calculate the 183-Day Rule?

For most countries that apply this rule, you are a tax resident of that country if you spend 183 or more there. The United States, however, has additional criteria for applying the 183-rule. If you were physically present in the U.S. on at least 31 days of the current year and 183 days during a three-year period, you are a U.S. resident for tax purposes. Additional stipulations apply to the three-year threshold.

How Do I Know if I Am a Resident for Tax Purposes?

If you meet the IRS criteria for being qualified as a resident for tax purposes and none of the qualified exceptions apply, you are a U.S. resident. You are a tax resident if you were physically present in the U.S. for 31 days of the current year and 183 days in the last three years, including the days present in the current year, 1/3 of the days from the previous year, and 1/6 of the days from the first year.

The IRS also has rules regarding what constitutes a day. For example, commuting to work from a neighboring country (e.g., Mexico and Canada) does not count as a day. Also, exempt from this test are certain foreign government-related individuals, teachers, students, and professional athletes temporarily in the United States.

Do I Meet the Substantial Presence Test?

It is important to consult the laws of the country for which the test will be performed. If wanting to find out about meeting the U.S.’s substantial presence test, you must consider the number of days present within the last three years.

First, you must have been physically present in the United States for 31 days of the current year. If so, count the full number of days present for the current year. Then, multiply the number of days present in year 1 by 1/6 and the days in year 2 by 1/3. Sum the totals. If the result is 183 or more, you are a resident. Lastly, if none of the IRS qualifying exceptions apply, you are a resident.