Under Section 121, a single taxpayer may exclude from gross income up to a $250,000 gain from the sale or exchange of his or her principal residence as long as he or she meets the following conditions:

He or she has owned the property for at least two of the five years prior to the sale or exchange;

He or she has used the property as a principal residence for at least two of the five years prior to the sale or exchange; and

He or she has not sold another principal residence and taken the exclusion within the two years prior to the sale or exchange.

If taxpayers jointly own a principal residence but file separate returns, each taxpayer may exclude from gross income up to S250,000 of gain attributable to each taxpayer’s interest in the property, as long as the requirements of Section 121 have otherwise been met.

A husband and wife who file a joint return for the year of the sale or exchange may exclude up to S500,000 of gain if all of the following apply:

Either spouse meets the twoyear ownership requirement,

Both spouses meet the twoyear use requirement;

Neither spouse excluded gain from a prior sale or exchange of property under Section 121 within the last two years.

If the spouses fail to meet all three of these requirements, the maximum limitation amount to be claimed by the couple is the sum of each spouse’s $250,000 limitation amount determined on a separate basis as if they had not been married. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property.

Ownership and Use Qualifications

The requirements of ownership and use for periods aggregating two years or more may be satisfied by establishing ownership and use for 24 full months or for 730 days (365 days x 2). The two years do not have to be consecu

tive, so ownership and use requirements may be satisfied during non concurrent periods as long as both the ownership and use tests are met during the fiveyear period ending on the date of the sale or exchange. In establishing whether a taxpayer has satisfied the two-year use requirement, occupancy of the residence is required. Short temporary absences, such as vacations or other scasonal absences, even if accompanied with rental of the residence, are counted as periods of USC.

If a taxpayer obtains property from a spouse or former spouse in a divorce, the period during which the taxpayer is considered to have owned the property includes the period that the spouse or former spouse owned the property. A taxpayer is treated as using property as a principal residence for any period that the taxpayer has an ownership interest in the property. The taxpayer’s spouse or former spouse is granted use of the property under a divorce or separation instrument provided that the spouse or former spouse uses the property as a principal residence.

Safe Harbors and Unforeseen Circumstances Taxpayers who fail to qualify for the principal residence exemption may still qualify for a reduced maximum exclusion if the primary reason for the sale or exchange of a principal residence meets the criteria for one of several safe harbors. Safe harbor events include health issues, employment relocation and unforeseen circumstances. An unforeseen circumstance is defined as an event that a taxpayer could not reasonably have anticipated before purchasing and occupying the residence and may include death, divorce, multiple births from the same pregnancy, unemployment, natural disasters and acts of terrorism.

Other events or situations may be designated unforeseen circumstances by the IRS in published guidance of general applicability, or the LRS may issue individual rulings addressing specific situations. Factors that may be relevant in determining a taxpayer’s primary reason for a sale include, but are not limited to, the extent to which:

The sale and the circumstances giving rise to the sale are proximate in time;

The suitability of the property as the taxpayer’s principal residence materially changes;

The taxpayer’s financial ability to maintain the property is materially impaired;

The taxpayer uses the property as his or her residence during the period of ownership of the property;

The circumstances giving rise to the sale are not reasonably foresceable when the taxpayer begins using the property as his or her principal residence;

The circumstances giving rise to the sale occur during the period of the taxpayer’s owner ship and use of the property as the taxpayer’s principal resi dence;

The reduced maximum exclusion is computed by multiplying the maximum dollar limitation of S250,000 ($500,000 for certain joint filers) by a fraction. The numerator of the fraction is the shortest of the following periods:

The period of time that the taxpayer owned the property during the five-year period ending on the date of the sale of exchange;

The period of time that the taxpayer used the property as his or her principal residence during the five-year period ending on the date of the sale or exchange; or

The period of time between the date of a prior sale or ex change of property for which

the taxpayer excluded gain under Section 121 and the date of the current sale or exchange

The numerator of the fraction may be expressed in days or months. The denominator of the fraction is 730 days or 24 months, depending upon the measure of time used in the numerator.

Death of a Spouse

The sale of a residence that had been jointly owned and occupied by a surviving and a deceased spouse qualifies for the S500,000 gain exclusion, provided the sale occurs no later than two years after the decedent’s date of death. The surviving spouse in the case of a jointly owned residence continues to be allowed a step-up in basis in the residence for the deceased spouse’s one-half share. The S500,000 exclusion for surviving spouses is in addition to that benefit.

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In the case involving the motorcyclist, she was seriously injured when she hit a pothole on a state road in western Pennsylvania. Before the accident, a local state senator had written a letter to PennDOT, advising that the stretch of road was dangerous and that “patchwork has caused more problems than it has solved.”

The senator’s letter described the road as “in disrepair’ and asked for immediate corrective action. A PennDOT representative acknowledged the letter in writing and advised that major improvements to the road were planned but that no funding was available to start the project.

Pennsylvania statutes provide that if a state agency has actual written notice of potholes or sinkholes or “other dangerous conditions’ of state roads, the state is not immune from lawsuits for personal injuries. Similarly, Pennsylvania statutes hold local government agencies like townships and cities to task for road conditions about which the agencies have “actual knowledge.” Actual knowledge can be proved by the minutes of public meetings or by the statements of city or township officials. PennDOT was successful in getting the motorcyclist’s case dismissed at the trial level-the agency claimed that the senator’s letter was too general to have given written notice of pothole problems, as it did not even use the word “pothole.”

But on appeal, the Pennsylvania Commonwealth Court disagreed, noting that the letter was detailed, identified the road adequately, and mentioned that “patchwork” had created dangerous conditions. Because the letter had been sent in adequate time for PennDOT to investigate and repair the pothole, the court found that the motorcyclist was entitled to take her claims to a jury trial.

In a previous case, the Commonwealth Court had found that written notice to the state cannot consist of a telephone message taken down by a state employee, however detailed the message may have been. State and local governments can’t keep all roads in perfect condition at all times; but written or actual notice of particular dangerous conditions can make state and local government liable to injured parties.

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As with any kind of insurance, the coverage offered by umbrella policies and the rates charged for them can vary greatly, Consider the possibility of buying an umbrella policy. You may find that it is right for you.

Resolution of legal issues depends upon many factors, including variations of facts and interpretations of Pennsylvania law. This newsletter is not intended to provide legal advice on specific subjects, but rather to provide insight into legal developments and issues. The reader should always consult with legal counsel before taking action on matters covered by this newsletter.

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The father’s custody order gave the mother “sole physical and legal custody,” limiting the father’s contact with the child to times and occasions the mother decided were appropriate. In response, the father filed a petition to terminate his support obligations, arguing that the custody order was effectively atermination of his parental rights.

The Pennsylvania Superior Court noted that the case had along and complex history. The parents had had a tumultuous relationship and separated when the daughter was 10 years old. The father did not see the daughter for more than a year, when he filed for custody rights, the court ordered”reunification counseling,” a process in which a child and parent are reintroduced in a counseling setting after a period of estrangement.

The daughter resisted the counseling, coming to the sessions with a blanket over her head. After five sessions, the counscling wasterminated. For the next several years, various attempts were made to advance the father’s custody claims through psychological evaluation and intervention. None of the efforts was successful, and when the daughter was nearly 18 years old, all counseling stopped.

The Superior Court required that the father continue to pay his support obligation, finding that his parental rights had not been terminated and that the daughter had financial needs that both parents were obligated to meet. The court distinguished termination of parental rights from awards of sole custody, noting that when a parent’s rights are terminated, it is as unequivocal as “the death of the child,” and no parental relationship exists following the termination. Sole custody awards, while rare, don’t terminate a parent’s rights. Holding that the duty of child support is “absolute” and is the “equal responsibility of both mother and father,” the court dismissed the father’s appeal and upheld the support order.

Parents whose custodial time is limited often find the unwavering position of the courts on child support to be frustrating. Pennsylvania law is clearin its firm requirement that both parents are responsible to Support a child.

Parents who are dissatisfied with limitations on their custody rights must advance their custody claims as best they can in custody proceedings. Parents cannot secure relief from the support court based on the status of their custody case.

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The Pennsylvania Supreme Court recently announced that expert testimony is not required in every case in order to prove that a driver was impaired by his or her use of lawfully obtained prescription drugs.

In the case before the court, an eyewitness driver followed another driver while she called 911 to report the woman’s repeated weaving across lanes of traffic. The police officer who responded and pulled the woman over testified that she had failed three separate field sobriety tests, had been unable to stand unsupported, and had struggled to light a cigarette. Blood testing revealed the presence of several mood-altering Schedule IV prescription drugs in her blood, just below the appropriate therapeutic range. The woman had prescriptions from her doctors for all the drugs,

Legal and illegal drugs are classified in drug “schedules’ established and periodically revised by the federal Drug Enforcement Administration and the Food & Drug Administration. The Pennsylvania driving-under-the-influence (DUI) statute makes it a crime to drive with “any’ Schedule I substances in the blood, Schedule I drugs include heroin, marijuana, LSD, ecstasy, and other similar drugs,

Pennsylvania DUI law also criminalizes all use of any Schedule II and Schedule III drugs that are not prescribed. Schedule II drugs include Ritalin and Concerta, drugs often prescribed for attention deficit disorders but currently commonly abused by individuals without prescriptions. Schedule II drugs also include opiates, methadone, and prescription amphetamines and barbiturates. Schedule III drugs include such drugs as steroids, Suboxone, and codeine. Driving with “any” Schedule II or III drugs in the blood is a crime if the driver does not have a legal prescription for the drug.

Pennsylvania’s DUI statute does not specifically address the use of Schedule IV drugs like the one the reckless woman driver had in her blood-that schedule includes Xanax, Walium, and Librium, among others. But the DUI statute covers the use of all drugs on all schedules by the broad provision that it is unlawful to drive in Pennsylvania under the influence of any drug, or the combination of any drug and alcohol, if the drug or alcohol use causes the driver to be impaired to the point that he or she can’t safely drive or control a vehicle. Over-the-counter drugs, particularly when taken in combination with alcohol or prescription drugs, can cause impairment, too.

In the case involving the woman who drove recklessly, she claimed that the prosecutor had to prove that the Schedule IV drugs she took had actually impaired her driving. The Pennsylvania Supreme Court disagreed and decided that prosecutors have to evaluate every case individually, taking into account the particular drugs used by the driver and the “overall strength” of the rest of the evidence. Noting that the woman had had trouble standing during the field sobriety testing and that she had admitted using one of the three prescription drugs detected in her blood, the court found that it was fair for the trial court to have concluded that the woman had been impaired by drug use while driving. If you take prescription drugs, you should know the classification of the drugs by drug schedule. Make sure that you keep a current prescription for any Schedule II or III drugs you use, since the presence of “any” amount of those drugs in your blood while driving is a crime unless you have a prescription for the use of the drug. And assume that positive blood testing that detects alcohol, preScription drugs, or over-the counter drugs, even at or below therapeutic levels, can lead to a DUI conviction.

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The store security officers noticed the shoplifter “staging” DVDs around the store, Monitoring him on video surveillance throughout the store, the officers saw the man choose DVDs, carry them to other sections of the store, and leave them there. Eventually, he collected them, put them in his pockets, and left the store.

Following company policy that required the officers to stop suspects only after they had passed all the checkout registers, the officers attempted to stop the man outside the store’s entrance doors. He resisted, sitting on the ground. While struggling with the officers, he pulled a knife out of his pocket, which the officers initially pushed back into his pocket. Stepping one foot away from the officers, the shoplifter then pointed his knife at them, threw the DVDs on the ground, and fled.

The use of the weapon escalated the incident from a shoplifting incident to a felony robbery. Robbery is the use or threat of force in the course of a theft. The court ruled that the theft was ongoing at the time the shoplifter pointed his knife, making the incident a robbery.

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Two very different cases illustrate how Pennsylvania lawresponds to chronic and progressive work-related injuries.

Carpal Tunnel

A typist who worked for the City of Philadelphia was diagnosed with bilateral carpal tunnel injuries, but she didn’t notify the city of her injuries until more than a year after the diagnosis. Workers generally have 120 days to notify their employers of the existence of a work-related injury.

The Pennsylvania Supreme Court found that with “cumulative trauma’ injuries, the typist had 120 days from the last day of injury at the workplace, not from the first day of injury, to give notice to the employer. The court stated: “We is suffered, which will usually be find that in the instance of a cumulative trauma, where credited medical evidence shows that each Eye infection day of work causes an aggravation In a somewhat similar case, a or new injury, the 120-day notice licensed practical nurse who period begins to run on the last day worked at a hospital suffered a herpes infection to her left eye when a herpes-infected patient coughed in her face. She was promptly treated in the hospital emergency room but did develop a herpes infection in her left eye.

For more than 27 years, the nurse suffered periodic infections in the eye, but none interfered substantially with her ability to work, and all the infections responded to treatment. Yet 27 years after the initial infection, while she was employed at a different hospital, she experienced an infection that did not respond to treatment, and, after a failed cornea transplant, she lost all sight in the eye.

The Pennsylvania Supreme Court found that her former employer at the time of the initial infection incident was the responsible employer but that the much higher rate of pay she was earning at the time of the failed surgery was her pay rate for calculation of her Workers’ compensation Wage benefits. The result was that the original employer’s insurance company had to pay the claim at the much higher hourly rate of pay.

Employees whose injuries are related to cumulative trauma and employees who continue to Work despite injuries should keep careful records of their work activities, their employers, and their pay rates if they continue to work after their first sign of injury. An employee who continues to work and later files a claim must prove that a work-related aggravation occurred after the initial injury or that the injury did not become disabling immediately.

Likewise, employers must realize that the occurrence of a daily re injury to an employee keeps the clock running on the timeliness of the employee’s claim and can result in a claim raised many years after the initial injury.

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