BizLawBuz …. The Power of Know

Since the 1970s, Michigan drivers have operated under a “No-Fault” insurance model. Essentially, the no-fault system requires drivers to look to their own insurance carrier for primary medical coverage resulting from an accident, regardless of whether or not the covered driver caused the accident. Under the current system, drivers receive protection for unlimited lifetime medical benefits (as well as up to 85% of lost income, subject to monthly maximum).

The unlimited medical benefits derive from two sources. The injured driver’s insurance carrier pays the first $500,000 in benefits. If medical expenses exceed $500,000, the insurance carrier will pay the additional amounts but will then be reimbursed from the Michigan Catastrophic Claims Association (MCCA). Michigan drivers pay for these benefits in the form of a premium paid to the carrier and an additional assessment ($145 per vehicle for 2012) paid directly to MCCA. The current debate stems from the MCCA’s claim that the system is unsustainable and that the MCCA cannot afford to cover the spiraling costs of unlimited lifetime medical benefits. Consumer groups complain that the MCCA (which is operated by insurance industry executives) has not shared the data on which it bases its argument.

Pending legislation before the Michigan House would modify the current no-fault statute to impose limits on lifetime medical and rehabilitation benefits. Those limits (ranging from $500,000 to $5 million) would depend upon the level of insurance coverage drivers choose to purchase. Motorcyclists would have medical benefits capped at a maximum lifetime benefit of $250,000.

Assuming the Legislature implements the proposed changes, the question remains, “How will catastrophic claims beyond the available insurance coverage be paid?” If I opt for the cheapest available coverage and then end up in a catastrophic accident, where will I turn for medical benefits? One option is to purchase excess insurance coverage to protect against the risk. A more probable source for most drivers will be government benefits such as Medicaid. And of course, the possibility remains that the injured driver must forego treatment.

This is a complex, but extremely important, issue. Both sides of the debate raise valid questions that should be answered. Every Michigan driver should take some time to review the issue and understand the potential implications for herself, her household and the State of Michigan.

Dirk A. Beamer

Good news coming from the federal government? It’s true!

In October, the IRS announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for the 2012 tax year. This is the first time since 2008 that the limits have been increased, which is mainly attributable to the fact that the cost of living in recent years either decreased or did not increase enough to trigger adjustments.

According to www.irs.gov, here are a few highlights of the changes (see below for expanded information):

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.
• The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.
• The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2012 from $49,000 to $50,000.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.
• The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $160,000 to $165,000.
• The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $110,000 to $115,000.

As always, if you have any questions, please contact Wright Penning & Beamer.

Julie P. Cotant

Opportunities for the unscrupulous to concoct any number of scams involving both commercial and residential real estate transactions have been, and always will be, with us. Such things as falsified documents, illegal kick-backs, fraudulent appraisals, and so on, have been around for a very long time. Predatory lending and rescue scams are some of the new ones.

Current transactions involve distressed sales, foreclosures and short sales
While some believe that with the downturn in the economy there is not much going on with real estate these days, it is actually just the opposite. Unfortunately, the bulk of current transactions involve some sort of distressed sale, including foreclosed properties and short sales. These transactions take more time to close, are much more complicated and provide enhanced opportunities for fraud.

New statutory amendments to address growing fraud
While many have lost their homes, and the economy as a whole has suffered from unprecedented losses in the mortgage and real estate markets, others have found new and innovative ways to profit, sometimes illegally. In response, this past October the Michigan legislature passed, and Governor Snyder signed into law, a number of statutory amendments to address the growing problem of real estate and mortgage fraud. They include the following:

• Amendments to the Penal Code that provide that any person who falsely makes, alters, forges or counterfeits a deed, discharge of mortgage, power of attorney or other document that affects an interest in real property is guilty of a felony;
• Creates as a felony the new crime of residential mortgage fraud with penalties including fines, imprisonment and forfeiture of property used in connection with the crime, as well as invalidation of the fraudulent transaction;
• Increases the maximum prison terms for crimes involving obtaining money by false pretenses; and
• A ten (10) year statute of limitations for crimes involving false pretenses in connection with real property transactions, mortgage fraud, falsifying or forgery involving documents affecting an interest in real property.

Michigan Notary Public Act
In addition, the Michigan Notary Public Act has been amended to provide that it is now a felony punishable by a maximum fine of $5,000 and/or imprisonment for up to 4 years if a person knowingly violates the Notary Public Act when notarizing any document relating to an interest in real property or a mortgage.

All of these amendments take effect January 1, 2012. If you believe that you have been a victim of, or witness to, a fraudulent real estate transaction or mortgage fraud, please contact the Consumer Protection Division of the Michigan Attorney General’s office at 877-765-8388 or visit the Attorney General’s website.

Duane L. Reynolds

A long-time friend of mine, H. Robert Showers, Jr., practices law in the Washington D.C. area. I’ve known for years that Rob writes and speaks nationally about nonprofit and church law, but I just recently learned about a nonprofit that he founded, NonprofitChurchLaw.org. If you’re involved in nonprofit or church operation or governance in any way, you’ll want to add this website to your favorites.

I learned about the website at a workshop Rob recently presented at a national conference. In his workshop, Rob spoke about legal hotspots for nonprofits and churches. One of the hotspots is related to the new requirement that ALL tax-exempt organizations other than churches and church-related organizations must now file some version of Form 990 annually. Organizations that fail to file for three consecutive years will automatically lose their tax-exempt status. As a result of this new law, more than 275,000 nonprofits lost their tax-exempt on October 15, 2010. (We’ve written about this previously, so hopefully the news about this filing requirement does not come as a surprise to you.)

You can find out if your organization’s tax-exempt status has been revoked by going to www.IRS.gov/charities. If your organization’s name is on the “Automatic Revocation of Exemption” list, be aware that your donors can no longer deduct their contributions to you. Also, know that we would be happy to help you in re-applying for tax-exempt status. This is a task you will not want to put off, as any income received between the date of revocation and the date of reinstatement may be taxable.

On a related note, Rob shared that the IRS believes that most small nonprofits and churches are violating the tax-exempt requirements. As a result, the IRS has not only published increased guidance to assist organizations in complying with the requirements (we’ve also written about that), but it is making it tougher for nonprofits to acquire tax-exempt status in the first place. For example, each successive version of the Application for Recognition of Exemption has contained increasingly detailed questions about matters such as governance policies and sources of support.

In addition to the change in IRS focus, Rob reported that Senator Charles Grassley’s new Senate Nonprofit and Church Law Commission is exploring a number of significant changes, such as:

• Whether the income tax exclusion for clergy housing allowances should be limited or eliminated;
• Whether churches should have to file the same detailed annual information that other nonprofits have to file;
• Whether there should be an excise tax imposed on nonprofit organizations, not just individuals, that engage in excess benefit transactions;
• Whether the rule preventing the IRS from randomly auditing churches should be repealed;
• Whether the prohibition against churches and other Section 501(c)(c3) nonprofits engaging in political campaigns should be modified or repealed;
• Whether we need new laws clarifying the tax treatment of “love offerings” paid by church attendees to ministers; and
• Whether the “rebuttable presumption” of reasonableness for transactions between nonprofits and their leaders should be modified or eliminated.

For the most part, these changes are meant to address abuses by large organizations. If adopted, however, some of them have the potential of significantly impacting the bottom line of small churches and their pastors.

Lee Flaherty