Here are the important highlights of the Pennsylvania automobile insurance law, more formally called, the Pennsylvania Motor Vehicle Financial Responsibility Law:

1) When purchasing a new policy after 1990, your insurance company must notify you, in writing, of two very important coverage options which you are to consider. The options are regarding “limited tort” and “full tort” coverage. Those options are defined as follows:

LIMITED TORT RIGHTS

a) The laws of the Commonwealth of Pennsylvania give you the right to choose a form of insurance that limits your right and the right of members of your household to seek financial compensation for injuries caused by other careless drivers. Under this insurance, you and other household members covered under the policy may seek recovery for all unpaid medical and out-of-pocket expenses, but not for pain and suffering or other non-monetary damages, unless the injuries suffered fall within the definition of “serious injury.” At present, the courts across the Commonwealth of Pennsylvania are attempting to determine what constitutes a “serious injury,” however, no firm definition has yet been established. If you are injured in an accident you may think you have a serious injury, however, the other insurance company or court may disagree. Therefore, we recommend that you do not choose the limited tort option. If you are injured and cannot make a claim for pain and suffering your loss will far exceed the premium savings from choosing limited tort.

FULL TORT RIGHTS

b) The laws of the Commonwealth of Pennsylvania also give you the right to choose a form of insurance under which you maintain full and complete rights for you and members of your household to seek financial compensation for injuries caused by other careless drivers. Under this form of insurance, you and other household members covered under this policy may seek recovery for all unpaid medical out-of-pocket expenses, and may also seek financial compensation for suffering or other non-monetary damages as a result of drivers.

2) If you do not sign the form which you will be sent, you will have chosen the full tort coverage as described in (b).

3) The tort option you select will be effective for all future renewal policies, replacement policies, and any other private passenger motor vehicle policies under which you are insured as an individual. The only way you can change to the other is to obtain a form from your insurance carrier.

4) We strongly recommend that you choose full tort rights.

5) Even if you have chosen a limited tort policy, you shall be treated as though you have the full tort rights whenever the person at fault:

a) is convicted of, or accepts accelerated rehabilitative disposition for, driving under the influence of alcohol or a controlled substance in that accident;

b) is operating a motor vehicle registered in another state.

c) intends to injure himself or another person.

d) has not maintained insurance.

MEDICAL AND WAGE LOSS

6) All policies, whether full or limited tort, provide a medical benefit in the amount of $5,000.00. There will be no coverage for wage loss, unless you select and pay for this coverage.

The minimum wage loss coverage you may purchase is $5,000.00. This wage is payable in increments of $1,000 per month and will reimburse you for 80% of actual loss of gross income.

It should be noted that you can purchase more medical or wage loss coverage.

It should be noted that medical benefits provided under your automobile insurance policy are primary to any other type of health coverage such as group contracts. Also, your own automobile insurance policy pays medical bills for your injuries, regardless of the fault of the other driver.

Finally, medical bills are paid at 110% of the prevailing Medicare rate and you cannot be billed for the difference.

7) If you are the victim of an auto accident and have received Worker’s Compensation benefits, those monies are to be reimbursed from any money you may later recover from a negligent driver. Therefore, you can receive monetary benefits from Worker’s Compensation, and then also recover equivalent amounts from the negligent driver.

However, any amount recovered from a wrongdoer must be reimbursed to the Worker’s Compensation carrier.

UNINSURED AND UNDERINSURED

8) On July 1, 1990, uninsured motorist coverage and underinsured motorist coverage is no longer mandatory, but there must be a mandatory offer of such coverages. Unfortunately, purchase of uninsured motorist and underinsured motorist coverage is optional. This means that if you are injured by a negligent driver who does not have insurance, or does not have enough insurance to pay for all of your injuries, you will have no further source of money unless you purchase the all-important uninsured motorist or underinsured motorist coverages. You must specifically reject uninsured or underinsured motorists’ protection by signing a specific waiver form. THIS IS VERY IMPORTANT COVERAGE, AND IN NO EVENT SHOULD YOU SIGN THE WAIVER OR REJECTION FORM. WE RECOMMEND THAT YOU DO NOT GIVE UP THESE COVERAGES. If you have chosen the limited tort coverage option, you are likewise limited in your recovery for uninsured or underinsured motorist benefits.

9) If you select uninsured or underinsured motorist coverages, these coverages cannot be in an amount greater than your bodily injury coverage which protects you in the event that you yourself are negligent. However, you can decide to obtain less uninsured or underinsured motorist coverage than your bodily injury protection. For this you will have to select lower coverage in writing. DO NOT REDUCE THESE COVERAGES.

10) If you receive uninsured or underinsured motorists’ protection, you are entitled to multiply that protection by the number of vehicles you have insured in your household. This is called “stacking”. This is very important, since it obviously would multiply the coverage available to you or your family if there were to be a serious accident. However, you can “waive” or give up this so-called “stacking” and only receive coverage on one vehicle. WE URGE YOU NOT TO DO THIS. DO NOT WAIVE STACKING.

11) Insurance companies must provide discounts for restraint systems, anti-theft devices and driver improvement courses.

12) There are certain limits on when an insurance company can cancel your coverage. You must have two chargeable accidents where your company pays out more than $650.00 in damages. This figure will be adjusted every three years. It is now approximately $950.00.

13) For the first time, interest equal to the prime rate plus 3%, punitive damages, court costs and attorney fees may be awarded against an insurance company which acts in bad faith toward its insureds.

YOU WILL BE RECEIVING INSURANCE POLICIES, WITH MANY COMPLEX WAIVER FORMS, INCLUDING COVERAGE OPTION SELECTION FORMS, AND NOTIFICATION OF DISCOUNTS.

WHILE IT MAY SEEM ATTRACTIVE TO SELECT AN OPTION WHICH GIVES YOU A CHEAPER PREMIUM, OR TO GIVE UP CERTAIN COVERAGES OR BENEFITS IN ORDER TO SAVE SOME MONEY, YOU WILL BE SHOCKED TO LEARN HOW LITTLE INSURANCE COVERAGE YOU WILL ACTUALLY RECEIVE IN THE EVENT OF AN ACCIDENT SHOULD YOU GIVE UP IMPORTANT COVERAGES.

WE URGE EVERYONE TO SELECT THE FULL TORT OPTION, SINCE SELECTION OF THE LIMITED TORT OPTION AFFECTS NOT ONLY YOU, BUT ALSO OTHER PEOPLE IN YOUR HOUSEHOLD WHO MAY BE DEFINED AS INSUREDS OR NAMED INSUREDS.

ALSO, YOU SHOULD BE VERY CAREFUL NOT TO CHOOSE ANY OF THE WAIVERS WHICH MAY BE AVAILABLE, SUCH AS ELIMINATION OF UN- OR UNDER-INSURANCE, STACKING AND THE LIKE.

If you have any questions when you receive your policies, please feel free to call us. We will consult with you, free of charge, to answer your questions.

REMEMBER, DO NOT BE PENNY-WISE AND POUND-FOOLISH, FOR THE DECISION YOU MAKE NOW WILL BIND YOURSELF, YOUR LOVED ONES, AND PERHAPS OTHERS AS WELL, NOT ONLY FOR THIS POLICY BUT ALSO FOR RENEWAL POLICIES.
Leanord A. Sloane is a partner at Eckell, Sparks, Levy, Auerbach, Monte, Rainer & Sloane, and can be reached at (610) 565-3700, or (610) 431-4650.

The Internal Revenue Service has recently announced new requirements for tax-exempt organizations. These new regulations became effective June 8, 1999 and apply to all exempt organizations other than private foundations.

Basic Requirements for Tax Exempt Entities

Most people have a basic understanding that non-profit entities can obtain exemptions so that the entity does not have to pay any taxes, either federal or state. What many people do not know is that even though no taxes are due, the entity is still required to file tax returns!

The Internal Revenue Code requires that tax-exempt organizations file an annual information return where its gross income exceeds $25,000 in a single year or where the average gross income over previous years is more than this amount. The penalty for failing to file this return can be as high as $5,000 for each year for which the return was not filed. It is, therefore, important that the exempt organization timely file each year’s returns. Additionally, even a penalty is assessed, with proper representation it is possible that the penalties can be forgiven.

Many people when setting up a non-profit corporation do not realize that the entity is NOT automatically exempt from paying taxes merely because it is a not for profit company. Instead, the entity must file the appropriate applications, both state and federal, to obtain the tax-exempt status. Merely being a not for profit entity does not entitle the entity to the tax exemption.

New developments for public disclosure

The Internal Revenue Service has just released its new disclosure requirements for tax-exempt entities. These regulations require that exempt organizations provide copies of their three (3) most recent “annual information returns”. The “annual information returns” are the tax returns that exempt organizations are required to file.

The new requirements also provide that the exempt organization provide copies of its exemption application. This is the application made to the IRS for tax-exempt status. These documents are required to be provided to any individual making a request for the documents.

If the request is made in person the exempt organization is required to provide the documents immediately. If the request is made in writing the exempt organization has 30 days to provide the requested documents.

The exempt organization is permitted to charge the requesting individual the costs of copying the requested documents. This copy charge is limited to the amount charged by the IRS for providing copies, i.e., $1.00 for the first page and $.15 for each subsequent page.

Electronic publication alternative

One alternative to providing paper copies of the annual information returns and exemption application is providing these documents on a World Wide Web site. However, the exempt organization must still provide requesting individuals with the information about how the forms may be accessed on the Internet.

In general the posting of this information on the internet must be in a format that exactly reproduces the image of the original documents and allows the requester to access, view, download and print the posted documents without paying a fee. The .pdf (Portable Document Format) is one criterion that currently meets the IRS requirements.

Penalties

The IRS regulations also impose a penalty of $20 per day for failing to provide the requested annual information returns. This $20 per day penalty has a maximum cap of $10,000. The failure to provide a copy of the application for tax-exempt status does not have a maximum cap. The regulations provide that these penalties can be imposed against the responsible persons of the tax-exempt entity.

Therefore, it is very important that a tax-exempt entity obtain the proper advice in relation to its tax-exempt status along with other regulatory requirements.
Courtesy of: J. Caleb Donner is an attorney and a partner in the law firm DONNER & DONNER (Legal Warriorssm). He can be reached for questions at (805) 494-6557 or e-mail: [MAIL]donner@lawyer.com[ENDEMAIL]. Check out their web site at www.donnerlaw.com.

SMALL BUSINESS CAN CELEBRATE IRS RESTRUCTURING.

With the recent passage of the IRS Restructuring and Reform Act of 1998, many new taxpayer rights provisions now allow businesses to function more smoothly despite IRS audit or collection efforts. The new law expands, clarifies, and fine-tunes many of the most significant small-business oriented provisions in the Taxpayer Relief Act of 1997. Some of these provisions can just be pulled off the shelf and implemented when the need arises, while others require careful planning in order to fully realize certain tax benefits.

The 1998 Reform Act resulted in large measure from the numerous horror stories of small businesses dealing with IRS agents’ abusive tactics. The new law attempts to level the playing field for a small business when dealing with the IRS in certain key areas. Here is a brief review of some of the new provisions of the tax laws that may affect individuals and small businesses:

1. Improved procedure for IRS offers-in-compromise where businesses and other taxpayers can negotiate a settlement of outstanding taxes owed. These improvements include more liberal acceptance criteria making it easier for the taxpayer to settle for less than the full amount owed) as well as a requirement that the IRS suspend collection activities during the compromise process or while the taxpayer appeals.

2. Imposing procedural safeguards upon the IRS while an issue is in the collections process. When a business is contesting a tax liability, it frequently finds itself caught by an aggressive IRS collecting machine where assets vital to the continued operation of the business are seized. The new law requires the IRS to give 30 days notice before any levy or seizure. During this period the taxpayer can request a hearing by IRS Appeals and immediately halt the collection process.

3. Shifting the burden of proof to the IRS in a tax case in which the taxpayer introduces credible evidence relevant to a disputed issue. For a case that is litigated before the tax court, the shifting of the burden of proof cannot be underestimated. This change should reduce a great deal of pressure on the taxpayer and place it on the IRS. It should also make it easier on a taxpayer to dispute a tax liability that the IRS is claiming. Thus, it is easier to take a case to tax court.

Small business provisions.

The 1998 Reform Act also makes several important substantive changes to existing tax law.

1. Taxes can be deferred on gain from the sale of a business. Partnerships and S corporations can roll over gain on the sale of qualified small business stock, provided all interests in the partnership or S corporation are held by individuals, estates, or certain trusts.

Ordinarily the owner of a business has to recognize as taxable income all of the gain from the sale of the business. For example: Joe sells his printing business this year for $100,000. He initially invested $10,000 to get the business up and running and took a periodic salary. Joe would typically be liable for a taxable gain of $90,000 after the sale. Applying the 20% capital gain rate, this would mean Joe would have to pay tax on this gain of roughly $18,000 for the sale of his business.

The new rule allows Joe to invest the gain that would ordinarily be taxable into a new company. This investment “rolls over” the gain so that Joe does not have to pay taxes on the gain until he sells his interest in the new company. This permits tremendous tax savings on the sale of a business.

Home office deduction.

Under the prior law in order to get a tax deduction for a home office deduction, the principal place of business had to be the home office. A deduction could not be taken where the home office was used only for administrative or billing purposes even where the sole use of the home office was for the business.

Starting in 1999, taxpayers who set up offices at home to take care of the administrative or management side of their businesses will not be barred from taking a home office deduction, since the home will now be considered a principal place of business. You should be mindful, however, that the other home office deduction rules must be followed (for example, exclusive use for business) and the advantage of the home office deduction should be weighed against the qualification rules for the $500,000/$250,000 exclusion of gain on the eventual sale of your principal residence.
Courtesy of: J. Caleb Donner and Lori Donner are attorneys and partners in the law firm DONNER & DONNER, a full-service law firm practicing throughout Central and Southern California. They can be reached at (805) 494-6557 or e-mailed at [MAIL]donner@lawyer.com[ENDEMAIL]. Check out their web site at www.donnerlaw.com.