Lancaster Law Blog : Lancaster PA Lawyer & Attorney : Russell Krafft & Gruber Law Firm : Pennsylvania : Lancaster's Legal Link

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The IRS issues its Standard Mileage Reimbursement Rate each year. The rate determines the amount that can be used as a deduction for business travel and serves as a guideline for employers who reimburse their employees for the same. It reflects not only fuel costs, but also factors in average wear and tear on a vehicle.

In July 2011, the Internal Revenue Service responded to high gas prices by raising their mileage reimbursement rate from 51 cents to 55.5 cents per mile. In Notice 2012-1, the IRS indicated the new rate, which went into effect on January 1, 2012, would remain the same. The only change this year is that the rate for medical or moving expenses was raised from 19 to 23 cents per mile. The rate for charitable purposes remains at 14 cents per mile.

While there are generally no Pennsylvania laws requiring employers to use the IRS rate, there are tax advantages for doing so. The IRS will deem employers who make qualifying reimbursements up to 55.5 cents per mile as meeting their accounting requirements, thus no income reporting or withholding is required for those reimbursements. However, employers need to make sure that their employees have provided adequate proof that the mileage was strictly for business use. Qualifying employees who are not reimbursed for their business mileage will be able to deduct 55.5 cents per mile on their individual tax returns.

As an interesting side note, AAA's website offers a gas price tracker ("AAA Daily Fuel Gauge Report") that can be used to monitor gas price averages and compare averages in different geographical areas. This tool can be helpful in analyzing fuel expenses against reimbursement rates and keeping track of the fluctuation of gas prices.

According to the tracker, as of the date of this post, the national average for regular gas is $3.374 per gallon. Pennsylvania's average is slightly higher at $3.457 per gallon. At $3.439, the average in Lancaster County is also higher than the national average, but a fraction lower than the state average. A year ago, the gas average in Lancaster was $3.146, showing a rise of approximately $0.30 per gallon in the area over the past year.

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This past weekend, countless Pennsylvanians brought in the New Year with beer, wine and spirits at their get-togethers. However, if they wanted to give their guests a choice among the categories of alcohol, they had to make multiple stops beforehand, at least one being a state liquor store. Currently, Pennsylvania offers fewer options of where to purchase alcohol than states such as Virginia and Florida, where alcoholic beverages are more readily available from private retailers. Based on recent changes to liquor regulations and proposed legislation, it may not be long before some of Pennsylvania's alcohol revenue trickles onto the shelves of private businesses.

Throughout 2011 there was ongoing conversation about the Governor's intention to privatize the state's liquor sales. I previously commented on the possibility and how the Pennsylvania Liquor Control Board (PLCB) has reacted to this idea by expanding some of their policies and regulations when it comes to sales of alcohol (Changes to PA Liquor Code, PLCB Looks to Expand Sales). The PLCB and the privatization issue now seem to be back in the headlines as PLCB policies continue to evolve and as lawmakers take steps to hybridize the sale of liquor in Pennsylvania.

Late in 2011, the PLCB further relaxed regulations pertaining to the direct shipment of alcohol. The PLCB had previously required that any alcohol bought out of state be shipped directly to a state store where the item could then be picked up. The PLCB announced that they no longer require pick-up at a state store and will now permit wine or liquor to be shipped directly to buyers' homes. 

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In November, President Barak Obama signed into law the Three Percent Withholding Repeal and Job Creation Act. A part of this sweeping legislation provides incentives to employers for hiring veterans. 

The new legislation is an enhancement of the Work Opportunity Tax Credit ("WOTC"), which will sunset at the end of 2011. The WOTC was designed to spur employers to hire individuals from targeted groups that have a high unemployment rate, including qualifying veterans. 

For veterans, the new legislation takes the place of the WOTC by creating the Returning Heroes Tax Credit and the Wounded Warriors Tax Credit. Employers that hire veterans who have been looking for employment for more than six months may be eligible for a Returning Heroes Tax Credit of up to $5,600.00 per employee. Employers that hire veterans who have been looking for employment for less than six months may be eligible for a credit of up to $2,400.00 per employee. Under the Wounded Warriors Tax Credit, employers that hire veterans with service-connected disabilities who have been looking for employment for more than six months may be eligible for a $9,600.00 credit per employee.

Both of the credits apply to individuals who begin work for the employer after November 21, 2011, and the credits are scheduled to expire after December 31, 2012. Additionally, both credits are applicable to tax-exempt employers. Some of the calculations and qualification criteria related to the credits are sophisticated, so I suggest that you confer with a tax professional if your business is planning on utilizing one or both of them.

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Russell, Krafft and Gruber, LLP is excited to be featured in the Women in Business section of the November/December 2011 issue of Susquehanna Style. The feature highlights just some of the great qualities and community work of Christina Hausner, Holly Filius and Julie Miller. If you are interested in viewing the feature, you can purchase a copy at newsstands or view the publication online (page 91-92). Susquehanna Style is a bi-monthly regional lifestyle magazine for the residents of south central Pennsylvania.

In conjunction with the Women in Business feature, Chris, Holly and Julie will be attending the Celebrate Women event held on November 30, 2011, at the Accomac Inn. If you are interested in attending, you can purchase tickets and find out more information on Susquehanna Style's website. The $10 admission donation will benefit the Power Packs Project which is a school hunger initiative.

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As we have witnessed the Penn State Scandal spark movement toward change in state legislation, it is no surprise that its impact has now reached Washington, D.C. Yesterday, Pennsylvania Senator Robert Casey and California Senator Barbara Boxer introduced the Speak Up to Protect Every Abused Kid (Speak Up) Act of 2011. The purpose of the Act is to ensure that all adults, no matter what profession, will be legally obligated to report cases of suspected child abuse and/or neglect. The Speak Up Act would require all states to enforce this law and would also make clear to whom suspected abuse should be reported, either directly to law enforcement or to state Child Protective Services.

For more information on this legislation please visit:

http://www.casey.senate.gov/newsroom/press/release/?id=4870f6e4-6537-44d8-ad1b-3c41da07751e

or

http://www.clasp.org/news_room/news_releases?id=0057

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Downtown Lancaster is currently experiencing a growth spurt in terms of businesses starting or moving to the area. This growth is in part fueled by the arts, which has helped downtown Lancaster retailers see a boom in business. Retailers see a tremendous amount of traffic due to the popularity of Lancaster's First Friday events. Downtown Lancaster has established itself as a trendy place to shop for unique and stylish products, such as eco-friendly bicycles, organic food, gourmet chocolates and vinyl records. For some business owners or entrepreneurs starting a new business, the image that Downtown Lancaster has created presents a great opportunity for growth in a slumping economy.

If you are considering a downtown location for your business you should consider a variety of factors before making a decision.

• First, create a business plan with Downtown Lancaster as your location. What type of customers do you serve or plan on serving? Are they the type of customers who will frequent Downtown Lancaster? Will transportation be an issue for these type of customers? Visit the shops in Downtown Lancaster and see if your product or service fits in with other retailers and offers similarly unique and stylish qualities as other shops.
• Second, how will rent compare to where you are currently operating or other areas where you would consider operating? Base rent should not be the only types of comparison. If you're communicating with a broker, ask for a draft of the lease. Is the lease gross or net? A basic gross lease only includes base rent, while a standard net lease includes operating expenses and real estate taxes. In addition, some landlords (such as those in shopping centers) will charge a percentage of net income as additional rent. You may find that provisions of a lease for a downtown location are more ideal for a start-up business.
• Finally, if you're considering moving downtown you should attend First Fridays, if you haven't been attending already. First Fridays are immensely popular and it's important to understand what you're getting into. These events are a great opportunity for businesses to funnel traffic into their spaces and familiarize potential customers with their products and services.

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On Friday I posted an article regarding Pennsylvania's Mandatory Reporting Statute which requires certain people to report suspected child abuse to the proper authorities.  I highlighted some of the changes that have occurred in the law and the continuing confusion with the current law.  I suggested that our legislature may be prompted to take a look at the current law.   If you were watching the interview with Governor Tom Corbett on Meet the Press on Sunday morning, he confirmed that the move to strengthen the law has already begun.  Pennlive.com posted an Associated Press article with more details on the interview. The article says in part:

State lawmakers from both parties have proposed changes to toughen the law that governs the reporting of sex assaults, Corbett added. He said he would not be surprised to see it strengthened this year.   

“We have to make sure the change in the law is one that is effective,” he said.

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Unless you have avoided picking up a newspaper, turning on the television or conversing with friends, family or co-workers recently, you probably have heard about the scandal surrounding Penn State University and the sexual abuse allegations against former defensive coordinator, Jerry Sandusky. The scandal, however, extends beyond the football program and has resulted in criminal charges being filed against former athletic director, Tim Curley, and finance and business administrator, Gary Schultz. The charges against these two individuals are perjury and failure to report child abuse. The allegations surrounding the Penn State football program and the charges against its administration, aside from becoming major national news, have brought significant attention to the Pennsylvania Child Protective Services Law and have raised a number of questions about who is required to report child abuse and when.

The current Child Protective Services Law in Pennsylvania requires that someone who, in the course of their employment, comes into contact with children must make a report to the appropriate Children & Youth Service or police when they have reasonable cause to suspect that a child has been a victim of abuse. The Law further goes on to specifically list a number of categories of persons who are required to report suspected abuse including, but not limited to:

• Any licensed physician, osteopath
• Medical Examiner, Coroner
• Funeral Director
• Dentist
• Optometrist
• Chiropractor
• Podiatrist
• Intern
• Registered Nurse
• Licensed Practical Nurse
• Hospital personnel engaged in the admission, examination, care or treatment of persons
• Christian Science practitioner
• Member of the Clergy
• School administrator, teacher, school nurse
• Social services worker
• Day-care center worker or any other child-care or foster-care worker
• Mental health professional
• Peace officer or law enforcement official

This list is not meant to be exclusive of others, but provides specific examples of those required to report. The Law also provides that any person may, even if not included in the above list, report suspected child abuse, although the Law does not impose a specific duty to do so.

The language of the Child Protective Services Law, while seemingly clear in its intent to require those in contact with children to report abuse, does leave open the question of what constitutes contact with children during one’s course of employment. Does it require constant contact? Occasional contact? It has been found that incidental contact with children during employment is not enough to trigger a reporting duty under the Law. In one case decided by a federal court interpreting this law, the Court found that a photo lab worker in a retail store was not under the purview of the Child Protective Services Law. Because the photo lab worker did not have regular contact with children during the course of her employment, she did not have a duty to report suspected abuse she perceived from photographs she processed in the lab.

Much has been made of the legal duty to report child abuse in the context of the allegations against the Penn State administrators. The question has been raised by at least one of the administrator's attorneys as to whether a crime was actually committed by the administrator’s failure to report the information provided to him by Joe Paterno and the former graduate assistant who allegedly witnessed the sexual abuse of the child. It has also been pointed out by legal journals and commentaries that in 2002, when these alleged failure-to-report crimes occurred, the law was different than it is today. The 2002 law required that the abused child come directly in contact with a person in his or her professional capacity in order for that person to be considered a mandatory reporter. The law was then amended in 2007 to broaden the reporting requirements and include those who received the information second-hand. 

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I would like to thank Timothy Kershner, CPA for providing his accounting and tax expertise for this blog article.

Timothy Kershner, CPA is a partner at the accounting and consulting firm of Walz, Deihm, Geisenberger, Bucklen & Tennis, P.C. He has more than 20 years of experience in public accounting and operates as the partner in charge of the firm's accounting and consulting division.

One important decision most business owners must confront is whether to treat certain workers as employees or independent contractors. An employer who makes the mistake of incorrectly classifying an employee as an independent contractor can face tax consequences and incur heavy penalties. Fortunately, the Internal Revenue Service ("IRS") has launched the Voluntary Classification Settlement Program (“VCSP”), which will enable many employers to reclassify workers as employees with minimal penalties. For those who are unsure of whether they are correctly classifying their workers and are concerned about possible audits, the VCSP can work as a "reset" button that offers a fresh start.

Employees vs. Independent Contractors

Before addressing the VCSP itself, it is important to understand a few basic concepts regarding tax reporting and withholding requirements for employers. If a worker is treated as an employee, the tax law requires the employer to withhold certain portions of the worker’s pay and pay those amounts directly to the federal government. The amounts withheld are generally reported to the IRS on payroll tax returns and to the employee on IRS Form W-2. In addition, the employer must remit their portion of payroll taxes.   

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This article has recently appeared in the Fall 2011 issue of the Lancaster Builder, a newsletter published by the Building Industry Association of Lancaster County.

For anyone who is unfamiliar with the term Mechanics’ Lien, while it may sound like it involves auto repair, it is actually a form of legal recourse available to contractors and subcontractors who perform work on real property and are not paid for their services. The lien itself is against the property on which the work was performed and is used as leverage against the owner of the property to collect any unpaid amounts owed to the contractors and subcontractors. It can be a valuable tool in certain collection matters, especially in light of changes to the Lien over the last five years that have made the lien more available to contractors and subcontractors.

The lien arises from a series of Pennsylvania statutes known as the Mechanics' Lien Law of 1963 ("Lien Law"). Over the last five years, the Lien Law has undergone a number of changes that affect the rights of contractors, subcontractors and property owners alike. The most extensive changes were made by the Pennsylvania Legislature back in 2006, but those changes did not come into effect until January 1, 2007. Since then, a few other changes have been made.

It is almost impossible to properly communicate these changes without using a good bit of “legalease”. However, I have attempted to summarize the changes by category. If your eyes still glaze over and you wonder how this might apply to you, I would call your attention to the expanded definition of "Subcontractor", the elimination of many lien waivers and the elimination of the preliminary notice requirements which have opened up lien claims to many subcontractors to which the lien was previously not available. As a result, many contractors and subcontractors who had previous abandoned attempts to utilize the lien may want to reconsider.

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Governor Tom Corbett recently signed the "Fair Share Act." This legislation brings Pennsylvania out of the minority of states regarding the method used to assign liability in personal injury cases. Our state has now joined over 40 others in abandoning the theory of joint and several liability. There is a significant difference between the two methods:

• Joint & Several Liability – the old law:  Under this method, if there were multiple Defendants determined to be at fault in a personal injury case, any of the Defendants could be required to pay 100% of the damages awarded to the injured party. The payment could be awarded regardless of the Defendant’s percentage of fault in the sustained injury. For example, if one of the Defendants was found to be 1% at fault in the case, the individual or business could still be required to pay in excess of 1% of the damages, even up to 100%, if the other Defendants were unable or unlikely to pay their shares. 
• Fair Share Act – the new law:  This law eliminates the joint and several component in Pennsylvania’s liability laws. Under the new Act, Defendants will only be held liable to pay the percentage of damages for which they have been found to be at fault. There are exceptions if their damages exceed 60%. Using the same example as above, a Defendant who was found to be 1% at fault in a case, will only be required to pay 1% of the monetary damages awarded even if the other Defendants are unable or unlikely to pay their shares. 

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This two part series will cover the most common mistakes people make when trying to form a Limited Liability Company (LLC) themselves. The first part of this series will address the importance of an operating agreement. The second part of this series will address potential problems when filling out a Certificate of Organization.

I work with a lot of new businesses and I understand saving money is important to a business. Cutting costs ultimately adds to the bottom line, which is extremely important for new business owners, so I can understand why people would want to try to form their LLC on their own. As an attorney I try to provide the maximum value to each client. While some people might feel that it's significantly more cost effective to form an LLC on their own, my clients know that I will work diligently to identify and correct issues that may cause unforeseen problems. The value of retaining an experienced lawyer is that I have seen firsthand the types of things that can go wrong. I am able to bring that experience to my clients who are new business owners and ask questions that may have significant implications to how they should structure an LLC.

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The flooding in Lancaster County has inconsistently affected residents and businesses. Some residents have come away from the flood with absolutely no water at all in their basements and others have seen major damage from the flooding. My own neighborhood effectively turned into an island and getting home seemed impossible without a row boat. On September 13, 2011, Lancaster County was declared a Federal Disaster Area. This declaration can have significant impact, not only for those trying to get the water out of their basement or who have been severely affected by the flooding, but also for those who had tax deadlines this week.

Lancaster County's Website has some very helpful links and information for those who were affected by the recent flooding. On their website you can apply for federal assistance through FEMA, and other federal and state agencies, including unemployment assistance for individuals who find themselves unemployed due to the effects of Hurricane Irene or Tropical Storm Lee.

For other individuals and businesses in Lancaster County and surrounding counties including Adams, Bradford, Columbia, Cumberland, Dauphin, Lebanon, Luzerne, Lycoming, Montour, Northumberland, Perry, Schuylkill, Snyder, Sullivan, Susquehanna, Union, Wyoming, and York counties, the declaration making these areas a Federal Disaster Area has extended some important tax deadlines until October 31, 2011, even if you were not directly affected by the flooding. This extension includes corporations and other businesses that previously obtained an extension until September 15 to file their 2010 returns, and individuals and businesses that received a similar extension until October 17. It also includes the estimated tax payment for the third quarter, normally due September 15. You can go to the IRS website for more comprehensive information about the tax extension.

The Federal Disaster Area determination will also allow taxpayers in the affected areas to claim disaster-related casualty losses on their federal tax returns for either this tax year or last year. 

Please also remember that if you take advantage of the deadline extension, you may still receive a penalty notice from the IRS; you will need to contact the IRS using the number provided on the notice. You may need to confirm with the IRS that you are in an affected area and are entitled to the extension without penalty.

The PA Department of Revenue is providing a similar extension for the affected counties. Their website lists additional details regarding the special extension for affected PA taxpayers.

Countless Lancaster County residents were affected by these two storms. Regardless of the degree with which the storms may have impacted your home or business, be aware that you may be eligible for some benefits or assistance due to the Federal Disaster declaration.

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I came across an interesting question recently regarding the personal information required for the Small Business Administration's (SBA) loan application process. SBA has a business loan requirement checklist on their website and in the personal information section it states,

"Either as part of the loan application or as a separate document, you will probably be asked to provide some personal background information, including previous addresses, names used, criminal record, educational background, etc."

So let's say you have a criminal record and would like to apply for an SBA loan, are you immediately disqualified for a loan?

To answer this question you first need to understand the role of SBA in lending. SBA directly lends money to small business owners. SBA guarantees loans offered from participating lenders, such as banks and credit unions. The idea is that private lenders will be more likely to provide small business owners a loan if SBA is willing to stand behind a loan and pay if the borrower does not. Both SBA and the lender will have their own requirements to approve you.

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Anyone who has remodeled their home more than once knows that it can be a roll of the dice. While there are many credible remodelers out there who will perform as promised and complete the job on budget, there are some who fall far short of those standards.

I have heard horror stories about this from some of my clients. In one case, a remodeler gutted a large portion of a client’s home and refused to continue on the job unless the client paid twice the amount that was originally agreed upon. I have also heard reports of shoddy workmanship, inflated budgets and, in some cases, remodelers who take a down payment and never show up. While such remodelers are in the minority, as a consumer it is important to take steps that will reduce the likelihood of selecting a bad remodeler.

One of the first steps is to check with Pennsylvania Attorney General’s website to see if the remodeler has registered as required under the Home Improvement Consumer Protection Act (the “Act”). The Act requires all persons or business entities that perform home improvement services to register, at which time they receive a registration number. Home remodelers are required to put that number not only on their advertisements, but also on any contracts they enter into with consumers. Thus, if the remodeler you are considering does not have a number or is not including it on their contracts and advertisements, you should be concerned.

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 As you may have seen in recent newspaper articles, Governor Corbett recently signed into law some changes to the Pennsylvania Liquor Code. The most publicized of these changes is that "happy hours", the period of time when a licensed establishment can sell discounted alcoholic beverages, has been expanded. The previous law limited happy hour to two hours per day with a maximum of 14 hours per week. The change allows a bar or restaurant to have a happy hour up to four hours per day, but maintains the 14 hour per week maximum.

This change allows a bar or restaurant some flexibility and discretion in setting their happy hours to target busy times when the specials may attract more customers. Common criticisms of these changes are that the expanded freedom will permit more drinking during those hours and possibly lead to an increase in driving under the influence offenses or accidents.

These changes are likely another step by the state to modernize the current liquor code, which was originally passed in 1951. While it has been updated and amended numerous times since then, many who work with the liquor code on a regular basis complain that it has become outdated. Whatever the reason, the expanded happy hour allows those who hold a liquor license to exercise some choice over when and how long they want to offer specials for alcoholic beverages

While the expansion of the happy hour restraints have garnered most of the headlines for the recent updates or changes to the liquor law in PA, the same law made some other important changes to the liquor code. One of the more interesting changes was that hotel, restaurant or other public service licensees may sell beer-to-go in either open or closed containers, as long as the municipality where they are located does not have open container prohibitions. This would allow an establishment to sell a draft beer to go or other similar beverage which could be carried out into the street, assuming the municipality of the location does not have an ordinance which prohibits open containers. Finally, the new law expanded the ability for certain types of nonprofit organizations to receive a special occasion permit to allow them to raise funds for their organization.

These changes highlight the fact that the liquor law rules and guidelines can be somewhat complex. If you need help interpreting the law and want to insure you are operating within the law you should contact a lawyer with experience in liquor law matters.

Aaron Zeamer is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Widener School of Law and practices in a variety of areas including Liquor Law issues.

Related Posts:

• Pennsylvania Liquor Control Board (PLCB) Looks to Expand Sales

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Even though gas prices are slowly falling, they are still relatively high. In fact, they are so high that the Internal Revenue Service has agreed to raise the standard mileage rate for operating a vehicle for business purposes from 51 cents to 55.5 cents per mile. The new rate applies to qualifying expenses that are both incurred and reimbursed on or after July 1, 2011. I think most would agree that despite the increase, the IRS will still not be winning any popularity contests.

While there are generally no Pennsylvania laws requiring employers to use the IRS' rate, there are tax advantages for doing so. The IRS will deem employers who make qualifying reimbursements up to 55.5 cents per mile as meeting their accounting requirements, thus no income reporting or withholding is required for those reimbursements. However, employers need to make sure that their employees have provided adequate proof that the mileage was strictly for business use.

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The United States Small Business Administration (SBA) recently took a step toward helping small businesses refinance their commercial loans. Many loans to small businesses have balloon payments where a large portion of the amount borrowed becomes due at the end of the loan. Usually these loans are refinanced so the balloon payment is never made but, in light of the Great Recession, these options may be limited or unavailable to small businesses. I saw an article in the Central Penn Business Journal that local economic development corporations (EDCs) were pushing the opportunity to refinance under the SBA 504 lending program, which historically was only available to new purchases of property and equipment. Under the new program, however, eligible small businesses will have the benefits described below of the 504 program to refinance existing loans.

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If you want to form a new business or already have a business, you may be wondering what entity is right for you. Limited Liability Partnership (LLP), Limited Partnership (LP), General Partnership (GP), Limited Liability Company (LLC), S. Corp. and C. Corp. are common business entities in Pennsylvania and are generally used in different circumstances. Which entity is right for you depends on a number of factors such as taxation, liability for owners, control over business decisions and transferability of ownership. This article will briefly describe various business entities and when each entity may be right for a particular business, as well as how to form the entity and certain costs associated with forming and carrying on the business.

General Partnership (GP). Unless another entity is formed, whenever two or more people carry on a business for profit in Pennsylvania they are a general partnership. No document needs to be filed or signed for this type of entity to exist and, if there is no Partnership Agreement, Pennsylvania's Partnership Act determines the rights of the partners. For example, if no writing is in place, then profits are shared equally between partners and losses are shared in the same manner as profits. This means if one partner has contributed significant money toward the partnership and the other has not, each partner will share equally in the profits, regardless of how unfair this might appear. The good news is that there is a lot of flexibility in creating Partnership Agreements to carry out the intention of the parties.

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This week from May 16 - 20, is National Small Business Week. National Small Business week was proclaimed in 1963 to recognize the positive contributions small businesses make to the United States economy. Here are a few facts about small businesses from the National Small Business Week website:

• There are an estimated 27.2 million small business owners in the United States.
• More than half of Americans either own or work for a small business.
• Small businesses are responsible for creating 60-80 percent of new jobs in the country.
• Small businesses drive innovation, create 21st century jobs and increase U.S. competitiveness.

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It doesn’t happen often, but sometimes the government realizes that it may have bitten off more than it can chew and reconsiders its actions. Such reassessment occurred twice this past April when both the Pennsylvania and federal legislatures repealed unpopular portions of legislation they had previously enacted. 

On the state level, the legislature repealed a 2009 addition to the state’s Uniform Construction Code which required residential builders to include sprinkler systems in new construction. Some have estimated that sprinklers add $2,000 to $4,000 to the price of an average new residence. Many builders and real estate professionals asserted that the additional cost would depress an already struggling home builders’ market. Thus, last month, the state legislature reconsidered and authorized a repeal of the provision and Governor Tom Corbett signed the repeal into law on April 25.

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On Friday, April 22, Aaron Zeamer, Derek Dissinger and I are looking forward to hosting a workshop at the Launch Music Conference and Festival at the Lancaster County Convention Center. In our workshop we will be discussing the advantages of forming a limited liability company. This 30 minute workshop called, "Your Band as a Business: How to Set Up an LLC and the Benefits of Doing So," will begin at 3:45 P.M.  I wanted to highlight in this post some of the benefits for a band to form an LLC.

For the uninitiated, "LLC" stands for "limited liability company", which is one of several types of entities that can be formed by people to run a business. While most bands think of themselves as artists first but  it is important to address the business issues as well. Forming an LLC takes some effort and time in the beginning but in the long run, particularly as you achieve additional success, it will enhance your credibility and take away some of the hassles that can arise when trying to do business as individuals.

The owners of the LLC are called "members", and the structure of the business is less complicated than that of a corporation. The members can run the LLC themselves or hire a manager. An LLC is formed by filing a Certificate of Organization with the Pennsylvania Department of State's Corporation Bureau. Ideally, the members of the LLC then sign an Operating Agreement, which works as the rulebook for the LLC.

Although an LLC may not be the best solution in every situation, there are several advantages: 

•  Limited Liability - In most cases, the personal assets of members are protected from the liabilities of the LLC.
• Tax Pass-Through - Unlike a corporation, an LLC is not taxed at the business entity level. The taxes generally flow through to the individual members.
• Expenses and Losses - Members of the LLC can take advantage of tax deductions for business expenses and losses that may not be available to individuals.
• Consolidation - Because an LLC covers all of its members, it streamlines the logistical process of many business activities, such as filing documents with government authorities, entering into contracts and leases, initiating lawsuits on behalf of the members and maintaining company bank accounts.
• Song Rights and Company Property - The Operating Agreement for the band can be tailored to address who owns the songs and other items of company property and whether a departing member will retain any ownership of the band's music. It can also address how and if a departing member is compensated.
• Dispute Resolution - The Operating Agreement can also be specifically written to anticipate and provide solutions for disputes among the members that may arise.

The Launch festival starts on April 21^st and will run through the 24^th. There will be over 200 bands performing over the course of the weekend at various venues throughout the city. In addition to performances there will be various panels and workshops, like ours, for artists to attend. We are looking forward to checking out some of the bands are performing this weekend. 

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A few weeks ago I shared the good news that the IRS extended the tax deadline to April 18 this year.  If you’re like me, you probably thought, “That’s nice, but two days doesn’t make that much difference so I’ll just have my taxes done by April 15.”  Now that the deadline is fast approaching I’ve been asked by a number of friends and clients if the new deadline also applies to state and local taxes.  The PA Department of Revenue announced some time ago it had also extended the deadline for PA personal income tax returns.  However,  if you check out the homepage on the Lancaster County Tax Collection Bureau’s website you will see they have extended hours on Friday, April 15, but return to normal working hours on Monday, April 18.  They did, however, confirm that taxpayers have until Monday to file individual returns. In addition, taxpayers can now file their Lancaster County returns online.

Despite some information online to the contrary, the instructions for IRS Form 1040-ES lists April 18 as the due date for federal estimated payments as well. Filers who have applied for an extension will also receive a reprieve from the normal October 15 deadline which falls on a Saturday in 2011. Final returns are due on Monday, October 17.

Here are some parting thoughts as you take on the dreaded task of preparing your 2010 tax return.  It was Benjamin Franklin who said, “The only things certain in life are death and taxes.”  I recently read an anonymous quote in response to Franklin’s famous words, “Death and taxes may be certain, but we don't have to die every year."

**When this article was initially posted I did not include information regarding PA State Estimated Tax payments.  According to the PA Department of Revenue website Pennsylvania 2011 Personal Income Tax Estimated Payments are due on April 15.  Please note this deadline has not been extended until April 18.

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For most tax professionals and many taxpayers, April 15^th stands out every year as the day when tax returns and any related tax payments are typically due. However, this year we will have three extra days to file returns and make payments. 

The filing deadline for 2010 returns has been pushed back to Monday, April 18, 2011. Why? It turns out that Friday, April 15, 2011, is observed as Emancipation Day, a legal holiday in the District of Columbia. Relevant laws state that District of Columbia holidays affect tax deadlines just as federal holidays do because the offices of the Internal Revenue Service will be closed. The April 18^th deadline applies to any return or payment normally due on April 15^th, as well as to the deadline for requesting a tax filing extension and to making 2010 IRA contributions. Moreover, taxpayers who request an extension will have two extra days to file their returns because October 15, 2011, falls on a Saturday.

As an interesting side note, Emancipation Day celebrates the day in 1862 when President Abraham Lincoln signed the Compensated Emancipation Act for the release of slaves in the District of Columbia. This occurred approximately nine months before President Lincoln issued the famous Emancipation Proclamation. For more information on Emancipation Day, please see the District of Columbia website. 

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Do-it-yourself projects, like remodeling your bathroom or building a deck, can save money and provide a sense of accomplishment by doing something on your own that you would ordinarily hire another person to do. With any do-it-yourself project there are risks involved, such as increased cost if you have to hire a professional in the end or if your inexperience causes other damage. 

The internet has allowed individuals to perform some legal functions on their own. Many government websites, for example, offer forms with detailed instructions that can be very helpful for people seeking to help themselves with certain issues. There are also websites that offer forms and additional services for a fee. These websites are required to stop short of offering legal advice because they are not law firms, which is made very clear on LegalZoom's website: "LegalZoom is not a law firm, and the employees of LegalZoom are not acting as your attorney….if you need legal advice for your specific problem, or if your specific problem is too complex to be addressed by our tools, you should consult a licensed attorney in your area." Because these sites are not law firms, they are also not subject to the rules that govern lawyers. This is why they are able to do things lawyers can't do, such as use celebrity endorsements. 

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I recently read an article on MSNBC.com, Feds settle case of woman fired over Facebook comments, which discussed a settlement in Connecticut which will have a significant long-lasting impact on employers' policies regarding their employees' conduct on the internet. The National Labor Relations Board ("NLRB") reached a private settlement with American Medical Response of Connecticut, Inc. for the termination of an emergency medical technician who posted what the article called an expletive-filled posting which referred to the employee's supervisor as the company's code for a psychiatric patient. The ambulance company had an employment policy which prohibited employees from disparaging the company over the internet or depicting the company in anyway.

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The Internal Revenue Service has announced a new standard mileage rate for 2011, which is generally used to estimate the costs of operating an automobile for tax purposes. The new rate, effective January 1, 2011, is 51 cents per mile, up one cent from last year. In addition, the standard mileage rate for medical or moving and medical expenses has been raised from 16.5 to 19 cents per mile, and the rate for charitable purposes remains at 14 cents per mile.

While there are generally no Pennsylvania laws requiring employers to use the IRS' rate, there may be some tax advantage for doing so. The IRS will deem employers who make qualifying reimbursements up to 51 cents per mile as meeting their accounting requirements, thus no income reporting or withholding is required for those reimbursements. However, employers need to make sure that their employees have provided adequate proof that the mileage was strictly for business use. Qualifying employees who are not reimbursed for their business mileage will be able to deduct 51 cents per mile on their individual tax returns.

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The primary benefit of incorporating your business or forming a LLC is limiting your liability to your investment in the business. In the event that a corporation or LLC is sued, the business can only lose its own assets and shareholders or members cannot be held personally liable for the debt. Limited liability is possible because the law perceives a corporation or limited liability company a separate legal person from its members or shareholders. Given this general rule, business owners might be surprised to learn that in some circumstances courts will disregard that separate entity and hold shareholders and members personally liable.

Courts will "pierce the corporate veil" where it perceives a business entity as being no more than an extension, or "alter ego" of the owners. Courts will consider factors such as lack of investment in the business, failure to adhere to normal corporate formalities, such as making bylaws, keeping corporate minutes, holding annual shareholder meetings, electing directions, and owners using corporate accounts to pay personal bills. In such cases the business looks less like its own entity and more like an extension of an owner.

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This blog has made several posts regarding covenants not to compete. Covenants not to compete are generally viewed as positive steps for businesses to protect their interests and prevent key employees from leaving and taking clients with them. A recent federal district court opinion, Howard v. United States, suggests that consideration of future tax ramifications for professional services providers that incorporate and subsequently sell their practices are now necessary.

On July 30, 2010, a federal district court in Washington held that a dentist’s covenant not to compete he signed with his own practice, a C-Corporation, converted his goodwill, which is ordinarily personal, into a corporate asset. The effect of converting his otherwise personal goodwill to a corporate asset was that upon sale of his practice, his goodwill was taxed at the corporate level, then taxed again when it was distributed as a dividend to him. If his goodwill had been considered personal it would have been taxed once as a long-term capital gain, which is currently taxed at a lower level than a dividend which is taxed as ordinary income.

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In order to spur the struggling economy, the federal government passed the Hiring Incentives to Restore Employment (HIRE) Act of 2010 this year. The goal of the HIRE Act was to provide incentives for employers to add new employees to their businesses, specifically, employees that were previously unemployed. With the unemployment rate gradually increasing, offering employers incentives to add new employees is even more important than when the HIRE Act was passed.

The HIRE Act predominantly encourages hiring new employees by creating tax benefits for employers that hire previously unemployed and certain part-time employees. The Act exempts employers from its share (6.2%) of social security taxes for hiring new employees that either did not work in the last 60 days or worked 40 hours or less in the last 60 days. In addition, if the employee is kept for one year (52 weeks) the employer can receive up to a $1,000 tax credit for the 2011 tax year. For example, an employee that has not worked since April 2010 who is hired on October 1, 2010 and retained until October 1, 2011 would create a $1,000 tax credit for the employer filing its taxes in 2012 for the 2011 fiscal year.

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Under Pennsylvania’s Unclaimed Property Act (the "Act"), some businesses and non-profit organizations were required to file an unclaimed property report with the Pennsylvania Treasury by April 15^th.  Many failed to do so.  However, under the Unclaimed Property Holder Amnesty Program (the "Program"), some of those late filers will be able to file without penalty until October 31, 2010.

In general under the Act, unclaimed property is any financial asset that has been left with a business without activity or contact for a period of one year or more.  In many cases, people have property such as expired gift certificates, checking accounts, stocks, dividends, uncashed checks, CDs and unclaimed insurance benefits.  The Pennsylvania Treasury maintains an online database to search whether you have any unclaimed property.

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A while back, I wrote an article called FACTA Guidelines for Disposing Client Information. This article discussed how the Fair and Accurate Credit Transactions Act of 2003 (FACTA) requires businesses to dispose of records and documents containing consumer information. Since then, some of my business clients have asked for clarification on issues relating to customer credit card information.

It doesn't seem that long ago that, when paying with a credit card, your card was placed in an awkward contraption that imprinted your card information onto several receipts. Many of you will also remember ripping out the carbon paper or having the clerk call an 800 number to authorize the transaction. These days, with internet shopping and machines that instantly authorize cards, it is much more difficult to stay on top of who has the ability to track your credit card information. FACTA is a response to that uncertainty.

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Since April 26 of this year, the Pennsylvania Department of Revenue ("PADOR") has been granting amnesty to anyone who pays their delinquent state taxes. Such amnesty was authorized by the Pennsylvania Legislature through Act 48 of 2009 in an attempt to raise sagging state revenues. Through the tax amnesty program, the PADOR is waiving all of the penalties and half of the interest accrued on those delinquent taxes. However, unless it is extended, the amnesty period will end on June 18.

The amnesty generally applies not only to individuals, but businesses, estates and any other tax-paying entities owing delinquent state taxes as of June 30, 2009. Applications for amnesty can only be made on-line, as no paper applications are available. However, payments can be made through a variety of methods, including electronic funds transfer, credit/debit card, check or money order. Cash is accepted, but only if delivered in person to the Department of Revenue’s Harrisburg District office which is located in the lobby of Strawberry Square. Once an application is submitted, a payer may make multiple payments during the tax amnesty period in lieu of one lump sum payment. For more information, please see the Pennsylvania Department of Revenue’s Tax Amnesty homepage.

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The 65% COBRA Federal Premium Assistance has been extended once again. The last extension covered involuntary terminations through March 31, 2010. On April 15 the President signed H.R. 4851 extending several government programs including unemployment benefits. The COBRA subsidy will now cover qualified individuals who are involuntarily terminated on or before May 31, 2010.

The U.S. Department of Labor has updated its Fact Sheet on the COBRA Premium Reduction. There is also additional information regarding eligibility of terminations from March 2, 2010 through May 31, 2010 which followed a reduction in hours: 

•   March 2, 2010 through May 31, 2010 if:

o        the involuntary termination follows a qualifying event that was a reduction of hours; and

o        the reduction of hours occurred at any time from September 1, 2008 through May 31, 2010 (a reduction of hours is a qualifying event when the employee and his/her family lose coverage because the employee, though still employed, is no longer working enough hours to satisfy the group health plan’s eligibility requirements).  

COBRA premium assistance continues to be limited to 15 months as provided in the first extension and ends upon eligibility for other coverage. For additional information you may want to check out another page on the DOL’s website that includes video messages and other FAQs.

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A few weeks ago I wrote about protecting the tax-exempt status of your nonprofit organization. As promised therein, this post covers intermediate sanctions; however, before I broach that topic, I wanted to pass along a quick tax note.

Earlier this month, President Obama signed the Hiring to Restore Employment Act (or the HIRE Act). One key provision allows most nonprofit and some for-profit organizations to keep their share of the 6.2% payroll tax on certain new hires of certain individuals for the rest of 2010. The new hire must NOT: (1) have worked more than 40 hours in the previous 60 days; (2) replace an existing employee (unless the former employee left voluntarily or for cause); and (3) be related to owners or managers of the hiring organization. Additionally, if the employer is a nonprofit, the new employee must perform work that furthers the employer's tax-exempt purpose. The Act also includes other provisions such as a new hire retention credit.  Please check the IRS website for additional details if you think your organization or business could benefit from the HIRE Act. 

Now, back to the subject at hand. The sanctions are called "intermediate" because they generally don't threaten the tax-exempt status of a nonprofit. They were developed because the IRS wanted a system more flexible than the all-or-nothing decision to revoke or not revoke tax-exempt status of questionable organizations. 

Essentially, intermediate sanctions penalize "disqualified persons" from entering into "excess benefit transactions" with tax-exempt organizations. The Internal Revenue Code defines a "disqualified person" as someone who was in a position to exercise substantial influence over the dealings of the organization at any time during the five year period ending on the date of the transaction in question. These are generally the directors, officers, key employees, founders, substantial contributors and employees with compensation based on revenue. Family members of "disqualified persons" also tend to be deemed "disqualified". 

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The COBRA subsidy, originally outlined in the American Recovery and Reinvestment Act (ARRA) and subsequently extended, covered involuntary terminations through February 28, 2010. Without another extension, employees involuntarily terminated beginning March 1 would not have been eligible to receive this COBRA premium assistance. 

Congress had been attempting to push back the extension one more month, but that bill was blocked by Senator Jim Bunning. However, Bunning yielded last Tuesday and the extension has now been officially pushed back until March 31, 2010. This will allow qualified individuals who are involuntarily terminated before that date to reduce their health plan costs by 65% through the subsidy. A bill called the American Workers, State and Business Relief Act of 2010 includes a provision to extend the subsidy through year-end. We will continue to monitor this ever-changing situation, so please be sure to check back.  In the meantime, for additional information, check the recently updated Fact Sheet posted by the United States Department of Labor.

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We have had a number of inquiries and comments on our blog post regarding Act 4, the amendment to Pennsylvania's insurance company law relating to health insurance coverage for adult children up through and including age 29. Prior to Act 4, if an employer offered dependent coverage, insurance companies were only required to provide coverage to children on their parents' insurance until the age of 19. The Pennsylvania Insurance Department estimates that almost 40% of those who were uninsured in Pennsylvania are between the ages of 19 and 29. 

A key phrase of Act 4 provides that the insurer's obligation to provide coverage to a child of an insured employee beyond a specified age, up through and including the age of 29, is "at the option of the policyholder", meaning the employer.   Also, coverage would be provided at the insured employee's expense. Employees may wonder why an employer would not choose to provide this coverage and what the value is of legislation mandating insurers to offer coverage while giving employers the ability to opt out. In addition, if an employer is self-insured, Act 4 does not make any change in what coverage must be offered because it applies only to insurers.

While insurers may appreciate the opportunity to provide coverage to the group of young adults who are underserved, employers are not likely to be as supportive. It has been projected that the mandate would increase employees' contributions to their group health insurance, since insurance laws require additional costs to be spread among all employees, and not just those with adult children. This may result in overall health insurance premiums rising for employers and all employees. In addition, this effect could result in more employers becoming self insured to avoid legal mandates such as extended adult child coverage or Pennsylvania mini COBRA application requiring COBRA coverage for employers employing fewer than 20 employees.

You can visit the Pennsylvania Insurance Department's website for additional information regarding Act 4.

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The tragic events recently suffered in Haiti have spurred millions of dollars in donations from American taxpayers to relief agencies devoted to helping earthquake victims. Through special legislation enacted on January 22, 2010, those taxpayers will generally be able to claim those deductions on their 2009 returns. It is hoped that the immediate benefit will spur even more current donations.

However, there are some limitations. 

• First, because donations to qualified charities are considered itemized deductions, the new provision will be unavailable to taxpayers who utilize the standard deduction. 
• Second, qualifying contributions are limited to cash and do not include property donations.  Qualifying  cash contributions can be made by text message, check, credit card or debit card. 
• Third, to qualify, donations must be made specifically for the relief of victims in areas affected by the January 12, 2010 earthquake in Haiti, and they must be made after January 11, 2010 and before March 1, 2010. 
• Fourth, the donations must be made to bona fide, qualified charities. The IRS maintains a database of such charities, but many churches and government agencies qualify even though they are not listed. 
• Please also note that donations to foreign organizations are generally not deductible. 

Finally, it is also important to keep a record of your donation. For donations by text message, the phone bill will suffice as long as the name of the charitable organization is listed.

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The United States Department of Labor's Employee Benefits Security Administration released two new resource links on the COBRA Continuation coverage.

• Fact Sheet: COBRA Premium Reduction
• COBRA Premium Reduction Extension Provision

According to the United States Department of Labor (DOL) the FAQ and other information will be updated sometime this week. If you are interested in receiving immediate updates from the DOL, consider subscribing to their COBRA webpage. By subscribing you can receive notification when the site is updated with new information. 

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Legislation enacted by Congress and signed by President Obama on December 21, 2009, extends the ARRA COBRA premium reduction eligibility for two months, from December 31, 2009 to February 28, 2010, and increases the maximum period for receiving the subsidy to a total of 15 months instead of 9 months. 

With the new changes, the law provides that the 65% premium subsidy for COBRA continuation health benefits is available to individuals who are eligible for COBRA as a result of an involuntary termination between September 1, 2008 and February 28, 2010. The law previously required that both the involuntary termination and the eligibility for COBRA coverage occur before the last effective date of the subsidy, but now only the involuntary termination need take place on or before February 28, 2010, not the COBRA eligibility.

Last month, when we posted on the duration of the COBRA ARRA subsidy, we noted that legislation was introduced to extend the deadline for eligibility as well as the duration of the subsidy. The change enacted this month was not a result of passage of the October legislation but rather changes added to the Department of Defense 2010 Appropriations Act.

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The Internal Revenue Service has announced a new standard mileage rate for 2010, which is generally used to estimate the costs of operating an automobile for tax purposes. The new rate, effective January 1, 2010, is 50 cents per mile, down 5 cents from last year. In addition, the standard mileage rate for medical or moving and medical expenses has been lowered to 16.5 cents per mile, and the rate for charitable purposes remains at 14 cents per mile.

While there are generally no Pennsylvania laws requiring employers to use the IRS' rate, there may be some tax advantage for doing so. The IRS will deem employers who make qualifying reimbursements up to 50 cents per mile as meeting their accounting requirements, thus no income reporting or withholding is required for those reimbursements. However, employers need to make sure that their employees have provided adequate proof that the mileage was strictly for business use. Qualifying employees who are not reimbursed for their business mileage will be able to deduct 50 cents per mile on their individual tax returns.

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We have posted on the 65% COBRA subsidy several times since the American Recovery and Reinvestment Act (ARRA) was enacted.  ARRA provided for a premium subsidy for COBRA continuation health benefits to "assistance eligible individuals."  Those individuals are defined as an employee or member of his/her family who is eligible for COBRA continuation coverage:

1)      at any time between September 1, 2008 and December 31, 2009

2)      elects COBRA coverage, and

3)      is eligible for COBRA as a result of an involuntary termination between September 1, 2008 and December 31, 2009. 

Some changes may be effected if the Extended COBRA Continuation Protection Act of 2009, H.R. 3930, introduced in the House of Representatives on October 26, 2009 and referred to Committees on Education and Labor, Energy and Commerce, and Ways and Means, is enacted.   

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I have compiled a record retention schedule to help guide my clients in determining when to dispose business records. Please note that this list serves only as a guide and special circumstances could alter any retention period given.

For more information on record retention check out our previous posts on record retention:

Record Retention in an Electronic World: Time to Clean House?

Developing a Record Retention Policy

Employment Record Retention/Destruction Policies: What not to do

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If you thought that no one in Harrisburg was doing anything but wringing their hands about the Pennsylvania state budget for the last 3 months, think again! The Pennsylvania Senate and House of Representatives got together and signed Act 2 of 2009 on June 10, mandating continuing health insurance for employees of employers with fewer than 20 employees, effective July 10, 2009.

Since 1985, the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) has required employers of 20 or more employees to provide its employees and eligible dependents continuing health insurance if they experience a qualifying event.

Under COBRA, employees or their dependents are required to pay the cost, up to 102% of the employer’s cost, to continue their health insurance. In February 2009, President Obama signed the American Recovery and Reinvestment Act providing for subsidized COBRA premiums for those employees who were involuntarily terminated after September 2008. Instead of 102%, the employees only pay 35%, and the employer fronts the remainder and receives a payroll tax credit for its payment. But this plan was available only to those who were subject to COBRA, not the smallest of employers. 

On July 10, 2009, when the Pennsylvania Mini-COBRA law becomes effective, the ARRA subsidy will apply to almost all employers in Pennsylvania. Currently, employers with fewer than 20 employees are not required to offer COBRA continuation coverage, leaving employees to shop for transitional policies which may not provide coverage for pre-existing conditions, prescriptions or maternity. Now employers who sponsor group medical insurance and have 2-19 employees will be required to offer employees and their dependents the opportunity to purchase up to nine months of continuation coverage on the employers group plan. 

While Pennsylvania’s Mini-COBRA is modeled after the federal COBRA law, there are some differences:

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On June 10, 2009 Governor Rendell signed Act 4 which amends the Insurance Company Law. Now insurers who provide coverage to children of employees must offer, at the policyholder's option and at the insured's expense, coverage for children up through and including the age of 29, provided that the child meets all of the following requirements:

    1.  Is not married.

    2.  Has no dependents.

3. Is a resident of Pennsylvania or is enrolled as a full time student at an   institution of higher education.

4.  Is not provided coverage under any other group or individual health insurance policy or entitled to benefits under any government health care benefits program, including under the Social Security Act.

This Act applies to new contracts and contract renewals occurring after December 7, 2009.  

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 July is probably my favorite month of the year for many reasons - lots of warm weather ahead, my birthday, my daughter's birthday and three whole weeks of the Tour de France. However, many home improvement contractors haven't been looking forward to the onset of July this year because the Pennsylvania Home Improvement Consumer Protection Act (the "Act") goes into effect today. I had previously written about whether a contracting business needs to register for the Act and how to ensure home improvement contracts are enforceable under the Act.

 In addition, this Act will have implications for how firms are rendering services. One of our clients took a proactive approach and sent emails to their entire customer base. This email explained that there was a provision in the Act stating that any contract subject to the Act (generally over $500) must include a provision that allows the homeowner to cancel the contract without penalty within three business days of signing. Essentially this provision could delay contractors from commencing home improvements for three days. Which could be problematic for customers looking for even a small project to be completed immediately.

However, this three day period is waived if the work requested falls into the emergency provisions of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Those provisions allow the three day period to be waived by the customer if the home improvement services needed are " . . . a bona fide immediate personal emergency. . . ." In addition, the customer must provide a personal and signed statement in their own handwriting that describes the situation and acknowledges not only the need for an immediate remedy but also an express waiver of their right to cancel.

If a bona fide emergency does not exist, it is probably not a good idea to begin work until the three day period has run because the contractor runs the risk of the contract being cancelled during that time, which will likely prevent the contractor from being reimbursed for the work performed. It is also a good idea to contact the existing customer base and notify them of this new policy.

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In his post on May 20, Matthew Grosh addressed the effect of the referendum lifting the alcohol sales ban in West Lampeter Township.  Yesterday morning an article in the Intelligencer Journal addressed some of the same issues. As there is a significant amount of local interest in this issue, I would like to provide some additional clarification regarding the process of obtaining a liquor license.

There are several types of liquor licenses available in Pennsylvania, including retail, specialty and hotel licenses. Many establishments that serve alcohol hold retail licenses, which are subject to Pennsylvania Liquor Code quota requirements. The Liquor Code limits the number of retail licenses to one per each 3,000 residents of a county. This quota often requires entities seeking to obtain a license to purchase an existing license and subsequently transfer it from the current owner. If the license is owned by an establishment in a different municipality, approval by the municipal governing body is required prior to approval by the PLCB. An inter-municipal transfer adds time and expense to the process of obtaining a liquor license.

Hotel liquor licenses are not subject to quota requirements. In order to obtain a hotel license, the licensee must meet criteria specific to hotels, including maintaining a certain number of guest rooms based on the population of the municipality. Representatives from Willow Valley have indicated that the resort will apply for a hotel liquor license. This allows Willow Valley to apply directly to the PLCB for the license, rather than having to purchase an existing license and request approval from the Township Board of Supervisors for the transfer of the license from a neighboring municipality. 

If Willow Valley begins the application process in the near future, it is very possible that it will be serving alcoholic beverages by this fall.

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On May 19, 2009, voters in West Lampeter Township overturned a ban on alcohol sales that had been in effect for 74 years. While the referendum had primarily been sought by the owners of the Willow Valley Resort, alcohol sales will now be allowed in the entire Township. Does this mean that bars and beer distributors will start popping up all over the Township? Based on our experience in representing restaurants and other liquor license holders, we do not believe such a result will occur.

In Pennsylvania, in order for anyone to open a business that sells alcohol, they must obtain a liquor license from the Pennsylvania Liquor Control Board (PA LCB). The process involves a detailed analysis of not only the owners and managers of the business in question, but also of the property in which sales are to take place. If those persons or premises do not meet the PA LCB standards, the license will not be approved.

Additionally, section 4-461 of the Pennsylvania Liquor Code generally puts a cap on the number of licenses issued in a particular county that is based on population, although there are exceptions for golf courses, bona fide hotels and other public venues. Because Lancaster County is usually at or near its cap, licenses will likely have to be purchased from another license holder, usually for a significant price. The license will then have to be transferred into the Township, which will be subject to the PA LCB's approval and the Township's zoning ordinances.

There are also protections for people who live near a proposed location for alcohol sales. For example, certain eligible individuals and institutions within a certain proximity to the location of the intended bar or restaurant can file a protest with the PA LCB. 

Realistically, it is likely that a limited number of restaurants, either existing or new, will be able to meet the standards and afford the costs described above and obtain licenses. There may even be a new beer distributor or two. However, for the reasons discussed above, a flood of bars is unlikely.

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In a previous post, I described the new Pennsylvania Home Improvement Consumer Protection Act (the "Act"), which takes effect on July 1, 2009, and identified which types of contractors are required to register. If the Act applies to you, it is important that the contracts you enter into for home improvement work conform with the Act's requirements. A failure to do so will generally prevent you from being able to enforce the contract if your client fails to pay.

In order to comply with the Act, contracts must:

• be legibly written and contain the registration number of the contractor along with the Bureau of Consumer Protection's toll free number, which currently is (888) 520-6680;
• be signed by the contractor and the homeowner or their respective agents;
• lay out the entire agreement related to the work to be performed and include copies of all required notices and special clauses;
• include the date the contract is entered into and the approximate starting and completion dates;
• contain the name, address (no PO boxes) and telephone number of the contractor and any subcontractors known at the date of signing the contract;
• describe the work to be performed, the materials to be used, and provide specifications that cannot be changed without a written change order signed by the parties;
• include the total sales price due under the contract, along with any down payments and amounts advanced for the purchase of special order materials;
•  identify the current amount of insurance coverage maintained by contractor with minimum amounts of $50,000 each for personal injury liability and property damage; and
• provide owner with a "right of rescission" which allows the homeowner to rescind the contract within three business days of signing without penalty.

However, even if all of the above conditions are met, a contract will be generally voidable under the Act if it contains any of the following clauses:

• hold contractor or subcontractors harmless in matters of liability;
• waivers of government health, life, safety or building code requirements;
• confession of judgment;
•  waiver of right to jury trial or any rights under the Act by homeowner;
•  an assignment of or order for the payment of wages or other compensation for services;
•  any clause prohibiting homeowners from asserting any claim or defense they would otherwise have under the contracts;
• any award of attorney fees or legal costs to contractor;
• any provisions relieving contractor of liability connected to contractor's collection of payments or repossession of goods;

Also, a contract cannot contain an automatic or recurring renewal provision unless the contract clearly and conspicuously states a procedure through which a homeowner can cancel the renewal through written notice to contractor via first class mail that is postmarked at least three business days before the renewal is to occur. In addition, the contractor must notify, via mail, the homeowner of such right to cancel the renewal no earlier than 20 days nor late than 10 days before the renewal.

Further, an arbitration clause may be attached as an addendum, but it must strictly adhere to the form required under the Act. Finally, a fully executed copy of the contract must be provided to the homeowner on the day of signing. Please let us know if we can help if you have any questions regarding your contracts or the Act in general. Also, for more information, please see the PA Attorney General's list of related FAQs or the Building Industry Association of Lancaster County's information page.

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I recently received a question from a reader that may be of interest to others. Following is a portion of the question and my response:

I read your article on COBRA it was very informative, Could you please tell me where I can get an answer to this question. I was laid off from my job in February. I am getting COBRA under the ARRA where my former employer pays 65% of my health benefits. I also am collecting unemployment.

My former company wants me to work a few weekend for them, will I loose my COBRA benefits if I do this.

The American Recovery and Reinvestment Act (ARRA) premium assistance subsidy ends not when you become employed but only when you become eligible for Medicare or another group health plan (such as a plan sponsored by a new employer or a spouse's employer). In fact the law imposes a duty on the recipient to notify the plan if they become eligible for coverage under another group health plan or Medicare, and failure to do so can result in a tax penalty. The subsidy will also end 9 months after the first day of the first month to which the subsidy applies or when COBRA benefits are no longer available to you. 

Generally, COBRA coverage is available for 18 months after termination of employment and may end earlier if: 

• Premiums are not paid on a timely basis

• The employer ceases to maintain any group health plan

• After the COBRA election, coverage is obtained with another employer group health plan that does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary. However, if other group health coverage is obtained prior to the COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election.

• After the COBRA election, a beneficiary becomes entitled to Medicare benefits. However, if Medicare is obtained prior to COBRA election, COBRA coverage may not be discontinued, even if the other coverage continues after the COBRA election.

The COBRA statute provides that eligibility for coverage ends on the date that the individual first becomes covered under any other group health plan (as an employee or otherwise) which does not contain any exclusion or limitation with respect to any preexisting condition of such beneficiary. However, this year's ARRA provides that eligibility for subsidy ends the first date that the individual is eligible for coverage under any other group plan, coverage under a flexible spending arrangement or coverage of treatment furnished by the employer, without mention of any exclusion or limitation with respect to any pre-existing condition.

I hope this answers your question, which we thought was an interesting one.

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A few years ago, Dateline NBC ran a piece with several horror stories from victims of unlicensed and unscrupulous home contractors. In some cases, unwary consumers shelled out more than $100,000 and faced foreclosure without work being performed. Because the contractors in question were typically not licensed, their victims could not track them down and obtain refunds. 

Such news is not just disconcerting to consumers. The majority of contractors who run their businesses in a conscientious and professional manner can be just as frustrated with such reports because it reflects poorly on them. 

The Pennsylvania Legislature has recently addressed this issue in enacting the new Pennsylvania Home Improvement Consumer Protection Act (the "Act"), which takes effect July 1, 2009. The Act requires home improvement contractors to register with the Attorney General and provide detailed information on the identities of their principals and the location of their offices. Such information in intended to be used to keep track of consumer complaints against individual contractors and to help consumers locate contractors to properly enforce contractual agreements.

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Keeping accurate and updated records are essential for the health of your business. The following questions are provided as guidance when assessing the health of your business entity:

• Have initial filings been made?

Fictitious Name Registration, Articles of Incorporation, EIN/TIN Application, LLP Registration, LLC Certificate of Organization, Subchapter “S” Election

• Are all required filings up-to-date?

Fictitious Name Registration, Decennial Filing, Amendments to Articles of Incorporation, Annual LLP Registration, Change of Registered Address

• Do you have / do you need to update:

Fictitious Name Registration, Bylaws, Corporate/Shareholder Buy-Sell Agreements, Partnership Agreements, LLC Operating Agreements  

•  Are corporate records up-to-date?

Annual Shareholder Meeting Minutes, Directors Meeting Minutes

• Are your record keeping procedures accurate and adequate?         

Corporate Records, Business Records, Tax Records

• When was your last Shareholders meeting? Directors meeting?

• Are your legal and financial advisors aware of personal matters that could affect business concerns or visa versa?

• Are your bookkeeping procedures and records accurate, complete, consistent and reviewed?

• Do you have a Business Succession Plan? If yes, is it up to date?

• Are your Estate Planning Documents up-to-date? Adequate for your business and personal needs?

Remember an ounce of prevention is worth a pound of cure. Make sure your business is in good health.

Download: Business Wellness Checklist

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In tough economic times, businesses tend to focus on larger issues such as their bottom lines, falling profit projections, and the streamlining of production. However a key component in the health of a business is often overlooked – the effects that economically stressed employees can have on their employers. Such effects include personal bankruptcies, wage attachments, theft and a decline in productivity caused by the psychological stress. Thus it is essential for employers to understand the key factors at play and implement sound policies to minimize damage.

• Stress and Loss of Productivity   Like many other types of psychological stress, anxiety caused by economic problems prevents employees from focusing on their work. Simply put, employers are getting less production per dollar of wages or salary paid. While identifying those in need of psychological counseling will help, many businesses have had success providing economic counseling and education as well to make their employees more financially literate. Please click here for more detailed information from the Partnership for Workplace Mental Health on combating the effects of such stress.

Other issues that will arise more frequently in the coming months include:

• Garnishment/Attachment of Wages
• Employee Bankruptcy
• Worries about Temptation for Theft

We addressed these issues in a blog post in April 2008, when we still referred to the condition of our economy as only an “economic downturn” but the general principles still apply. Please review this post to learn more about legal limitations placed on employer actions with regard to an employee’s financial problems. 

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The American Recovery and Reinvestment Act (ARRA) provides a COBRA subsidy for Employees who lost or will lose health insurance coverage under an employer-sponsored plan due to an involuntary termination of employment between September 1, 2008 and December 31, 2009. Many employers have no doubt that they are subject to these changes and are currently in the process of implementing updates. However, with the recent news about changes to COBRA, some small employers are asking themselves, do my employees qualify and am I required to provide COBRA continuation coverage? The good news is that the ARRA has not expanded the type of employer-provided plans subject to the Act, so if employers were not required to provide COBRA continuation coverage prior to the ARRA, they would not be required to do so now. 

COBRA continuation coverage applies to all private sector group health plans which are maintained by employers that have at least 20 employees on more than 50% of its typical business days in the previous calendar year. In determining the total number of employees, full and part-time employees are counted. However, each part-time employee counts as a fraction of a full-time employee. The fraction for a part-time employee equals the number of hours the part-time employee worked, divided by the hours an employee must work to be considered full-time. Therefore, if a private sector employer is offering a group health plan with at least 20 employees as calculated above, the employer must provide COBRA continuation coverage and will be required to abide by the new provisions in ARRA. COBRA continuation coverage also applies to state and local government-sponsored plans, but does not apply to plans sponsored by the federal government or by churches and church-related organizations. 

If you are not currently providing COBRA coverage but you think you may be nearing the threshold described above, it is imperative that you carefully review your 2008 employee census to determine if you are required to provide continuation coverage under COBRA.

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We received a question relating to employment in the economic downturn.  Is it legal in Pennsylvania to layoff an employee for lack of work, and a month later, replace that laid off employee with someone new.  I thought this would be a good topic to address in our blog. Generally, in the absence of a collective bargaining agreement or employment agreement providing for limitations on termination of employment, such an action on the part of an employer does not violate the law.

However, further inquiry can be made as to the true motive of the layoff.  Was the employee terminated because of his/her membership in a class protected under Pennsylvania and federal discrimination statutes?  Is she being replaced with someone not a member of the same protected class?  For example, replacement by an individual under the age of 40 can establish a preliminary claim for age discrimination if the employee replaced is over 40.

While the employer's proffered reason for termination, economic necessity, can appear to be pretextual if the employer is hiring a replacement soon after the layoff, the employer may have a logical reason for the new hire if it has secured new orders or new business.  And absent an agreement to the contrary, the employer has no obligation to recall laid off employees if business does turn around.

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In March of 2008, a man in Wichita, Kansas left his home for several months to take care of his sick mother.  Unbeknownst to him, a married couple broke into the house, assumed his identity, and proceeded to purchase various luxury items, including flat screen televisions and a satellite hookup, while they took up residence as if it were their own home. They even invited neighbors over for dinner and took out a second mortgage in the real homeowners name.

It's clear that the specter of identity theft has grown quite prominent over the last decade. In order to protect the public from the likes of the home invaders described above, the federal government has enacted the Fair and Accurate Credit Transactions Act (FACTA).  FACTA affects how businesses should dispose of records or documents containing consumer information. Likewise, it will serve you well as a client to ensure that the business doing work for you follows the FACTA guidelines, or you could end up opening up a nasty credit card bill showing pricey purchase of Elvis memorabilia from QVC that you never authorized.

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So you've got your program all lined up - every new employee, regardless of job duties - signs a ten-year covenant not to compete with an unlimited geographical scope. No exceptions. Everyone knows the rules, so you are ready to go to court when Joe, whose sales territory was the Northeast United States, goes to work for your competitor in the mid-West. 

Not so fast. Nothing frustrates clients as much as being told that a court won't enforce an agreement that is clear and in black and white. But in order to be enforceable, a non-compete must be reasonably limited in duration and territory. The duration of the covenant cannot be longer than reasonably necessary to protect legitimate interests, such as customer goodwill, trade secrets or specialized training. For example, your agreement should be no longer than the time it will take a new hire to demonstrate his or her effectiveness to customers if the non-compete seeks to protect customer goodwill. Odds are that it is not ten years. In addition, the geographic scope needs to be limited to the territory covered by the employee during his or her employment in customer goodwill cases. Courts don't readily enforce multi-country restrictions against sales people with limited territories. 

Although there are many cases in which courts have reformed or rewritten an overly broad non-compete, if an employer is a real hog, the court will simply state that it will not rewrite a non-compete and refuse to enforce it at all. This was clearly the case in 1973 in Reading Aviation Service, Inc. v. Bertolet, when the Pennsylvania Supreme Court said that they would not rewrite a non-compete that was unlimited in time and space. More recently, U.S. District Court Judge Stewart Dalzell in Fres-Co System USA, Inc. v. Bodell, reacted the same way and declined to reform an overly broad non-compete agreement stating that to do so would have sanctioned the employer's use of his excessive bargaining power to insist upon unreasonable and excessive restrictions upon its employee. The court stated that the non-compete's terms far exceeded what was reasonably necessary to protect plaintiff's business interests because employer's business was selling coffee packaging materials in the Southeastern United States and the Caribbean, whereas the non-compete spanned four industries on three continents. 

Many employers try to avoid this result by including a provision in the non-compete stating that should any portion or term of the non-compete be deemed unenforceable, the parties agree that the court should reform the agreement to one which is enforceable. However, the best practice is to include no terms in your non-compete that exceed what is reasonably necessary to protect your legitimate business interests. That analysis requires looking at each employee differently to determine what business interests would be jeopardized were there no restriction on his post-employment activities. Is it goodwill? Is it protection of trade secrets? What is the low end of the range of term of duration and geographic scope that will adequately protect you? Be honest and not overreaching, and you will be have a covenant that has a much greater chance of being enforced. 

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So you finally did the right thing.   You converted your sole proprietorship to a single member Limited Liability Company so that you and your personal assets are protected from the liabilities of the business. Now you can sleep more soundly at night because your LLC is busy keeping your house, bed and pillow safe from evil creditors, right? If your LLC has employees, the Internal Revenue Service would say "not so fast - what about payroll taxes?"

Employers are generally obligated to withhold FICA and income taxes, the "payroll taxes", from an employee's wages and pass on those amounts to the federal government. Stiff penalties can result if those obligations are not met. Still, if your LLC is the employer, shouldn't those penalties apply to the LLC and not you personally? The IRS disagrees.

When you created your LLC, you were required to file a form with the IRS to obtain a tax identification number. To complete the form, you had to "check-the-box" to choose if the LLC will be taxed as a corporation, partnership or as a disregarded entity. Because you didn't want to be double-taxed on the business and personal level, you didn't choose to be taxed as a corporation, and because you are a single member LLC, you couldn't choose to be taxed as a partnership because there needs to be more than one partner. As a result, your single member LLC is categorized by the IRS as a disregarded entity for federal tax purposes.

This is where personal liability comes in. Through Notice 99-6, the IRS decided to hold owners of single member LLCs personally liable for payroll taxes. The rationale was that because single member LLCs are disregarded for federal tax purposes, they are ignored and the owner is the "employer" for federal tax purposes. While state law normally provides that LLC owners are not to be held personally responsible for their LLC's liabilities, the IRS trumps those laws with the Supremacy Clause of Article VI of the United States Constitution.

However, there is some light at the end of the tunnel, but it's a good-news/bad-news scenarios. The good news is that on August 16, 2007, the IRS finalized new regulations stating, among other things, that they will no longer ignore single members LLCs for employment tax purposes. As a result, owners of single member LLCs will not be treated as employers for federal tax purposes. The bad news comes in two parts. First, the new regulations only begin to apply to employment taxes effective for periods beginning on or after January 1, 2009, so relief is not immediate. Second, owners of single member LLCs are still personally liable for the "Responsible Person Penalty" under Section 6672 of the Internal Revenue Code.

The "Responsible Person Penalty", also known as "trust-fund recovery penalty" and the "100-percent penalty" generally penalizes anyone who willfully fails to collect and pay over employee income tax and the employee portion of FICA taxes. The specific penalty is equal to the amount of tax not withheld and paid over. The liability of the "responsible party" is independent of the LLC's liability, and owners of single member LLCs are generally treated as "responsible parties." 

As a result, if you own a single member LLC with employees, it is very important for you to verify that your payroll taxes are being handled properly. If not, you could be putting yourself at risk.