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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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Texas responds to UPPO’s request for clarification of H.B. 1454

Posted By Administration, Thursday, May 18, 2017

Passed in June 2015, Texas law H.B. 1454 goes into effect on Sept. 1, 2017. The law allows property owners to designate a “representative for notice,” which triggers a requirement that the holder must mail or email the required due diligence notice to both the representative and the owner.

 

Representatives may not claim or access the owner’s property, but can stop the dormancy period by communicating with the holder knowledge of the owner’s location and confirmation that the owner has not abandoned the property. The new requirements also require holders to include the name and last-known mailing or email address of the representative when reporting unclaimed property.

 

In December 2016, UPPO posed several questions to Texas unclaimed property officials in an effort to receive clarity about the new requirements for the holder community. On April 24, 2017, Texas responded. The letter from Texas is prefaced with a statement advising that the letter is intended to provide general guidance and that no formal changes have been adopted by the Texas Comptroller of Public Accounts (comptroller).

 

Covered property types

UPPO sought clarity regarding which property types are covered by the law, specifically asking if IRAs and both open-end and closed-end mutual funds are covered. In its response, Texas specified that funds deposited with a bank or other financial institution in an interest-bearing account, checking account or savings account are included. This includes mutual funds held in an IRA, but those “would not be subject to abandonment until they would normally be reportable as unclaimed property.”

 

Methods to obtain representative information

Texas clarified that although the comptroller will provide a form holders may provide to owners to designate a representative it is not required and therefore other methods used to collect this information are acceptable. Texas expects to make the form available before Sept. 1, 2017, and “anticipate[s] that holders will inform customers of the option to designate a representative.”

 

Criteria for becoming a representative

UPPO requested clarification regarding specific criteria for being designated a representative and whether the designated person has to provide consent. Texas responded that it anticipates requiring that the representative be an individual over 18 years old who does not own the account. The state doesn’t anticipate requiring a legal relationship between the owner and representative, or requiring consent.

 

Duration and reporting of representative appointment

Texas anticipates its representative designation form will give holders the ability to specify the duration of the designation, according to the letter. Without such stipulation, the designation would be perpetual unless revoked. It seems likely that the form will actually give the ability to specify the duration of the designation to owners—not holders—and that the wording in the letter was an error.

 

Holders would not need to notify the comptroller of changes to designated representatives, only to list them when reporting unclaimed property. The comptroller is updating its electronic holder report format to accommodate representative details. The updated format should be announced before Sept. 1, 2017.

 

Multiple accounts

The state clarified that the representative designation form will give owners the ability to specify the accounts for which the representative is a designee. There will be an “all accounts” option. Communication from the representative regarding one account does not affect the abandonment period for any accounts for which that person is not designated as a representative.

 

UPPO will continue to monitor implementation of H.B. 1454 and will report on additional developments as needed.

 

 

Tags:  compliance  due diligence  Texas  unclaimed property 

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Diving deeper into the world of exemptions

Posted By Administration, Thursday, May 11, 2017

Exemptions provide holders with the ability to significantly reduce their unclaimed property liability. Unfortunately, identifying, understanding and applying available exemptions are not simple.

 

“There’s no uniformity in terms of their application or meaning,” says Freda Pepper, counsel for Reed Smith LLP. “For example, the business-to-business exemption isn’t addressed by every state or offered by every state. Among states that do offer it, the B2B exemption comes in a variety of shapes and colors. Some are full exemptions, some are partial exemptions and some have qualifications that others don’t.”

 

B2B exemptions are based on the idea that businesses don’t require the same protection as consumers because they have the resources and knowledge necessary to protect and recover their property from another business. While many states agree on this premise, they differ in their execution of the exemption.

 

Some, including Illinois, Kansas, Ohio, Maryland, and Virginia, offer broad B2B exemptions with few conditions. Others, including Indiana, Iowa, Massachusetts, Michigan and North Carolina, offer limited B2B exemptions that are still holder-friendly but may include exclusions. Others offer what appears to be a B2B exemption, but it is really a deferral, requiring an ongoing business relationship.

 

“Holders may not understand whether an exemption is outright or more of a deferral,” says Chris Jensen, director of abandoned and unclaimed property compliance for Ryan. “Sometimes the liability is delayed or deferred from reporting until the relationship you have with another business no longer exists. The definition of an ‘ongoing business relationship’ differs by jurisdiction, so it is important to review the state’s requirements before applying the deferral.”

 

Some states may not include a B2B exemption or deferral in their unclaimed property statutes, but do so administratively. These present greater risk and diligence, as they may change when a new administration is installed.

 

The B2B exemption is one of the more common exemptions, but many others are available. Gift cards represent another opportunity in many jurisdictions. More than 30 states offer some form of gift card exemption, depending on card variables including expiration date, fee inclusion and type of merchant (retailer or other). Other retail exemptions include merchandise return credits, loyalty cards, layaway deposits and rebates—each with their own restrictions, rules and application standards, depending on the state and other factors.

 

While holders are generally accustomed to reporting property regardless of its value, a few states offer de minimis exemptions. Michigan, for example, does not require escheatment of property valued at $25 or less. Similarly, Florida and Arizona exempt select property types below $10 and $50, respectively.

 

Because exemptions vary so widely, it takes some effort to identify and understand them. Even locating exemption language in state statutes can prove challenging.

 

“Locating where exemptions actually appear in the statute varies by state,” Pepper says. “Sometimes there’s an outright exemption addressed in the area covering the presumptions of abandonment. Often, the exemption can be found in the definitions section of the statute. For example, when defining ‘property,’ there may be a passage listing that is not considered reportable property. So, finding the exemptions can be a hunt.”

 

In addition, taking an exemption doesn’t relieve a holder from all responsibilities for that property.

 

“If the holder determines an asset is exempt from reporting, it doesn’t necessarily extinguish the liability on their books and records,” Jensen says. “There remains an expectation that you adjudicate the asset with the owner and resolve it on your books and records. Don’t automatically take it as income. Having conversations internally about how property is managed after its determined to be exempt cannot be understated.”

 

With so many variables and sometimes murky definitions at play, applying exemptions presents some challenges. Holders may need to examine how their reporting software accounts for available exemptions and consider their level of risk. When an exemption is offered administratively but not statutorily, a holder applying the exemption takes on some risk. Likewise, when definitions related to exemptions are vague and open to holder interpretation, risk increases. Holders should document their interpretation, apply it consistently and keep track of when it is applied. Doing so may prove useful if faced with an audit.

 

Holders seeking to minimize their unclaimed property liability have the ability to do so via exemptions. The lack of uniformity from state to state presents numerous challenges. Identifying, understanding and correctly applying available exemptions may not be easy, but can be worthwhile.

 

To help holders dive deeper into the world of unclaimed property exemptions, Jensen and Pepper will lead UPPO’s An Advanced View of Exemptions webinar on Wednesday, May 17. This informative webinar will focus on various exemptions offered by the states and will help holders determine when and how to apply them. Unclaimed property professionals with customers or vendors located in states that offer exemptions should not miss this in-depth educational session. Register now.

 

 

Tags:  audits  compliance  exemptions  unclaimed property 

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Delaware’s proposed audit regulations raise many questions

Posted By Administration, Thursday, May 4, 2017

Earlier this spring, the Delaware secretary of finance, in consultation with the secretary of state, published a proposed Department of Finance Abandoned or Unclaimed Property Reporting Examination Manual, as required by S.B. 13. The proposed regulations provide some clarity regarding the finance department’s approach to administration and enforcement of the law. However, they also raise noteworthy questions regarding language that may contradict S.B. 13, exceed the department’s authority and fail to clarify murky language in the statute.

 

Noteworthy issues include:

 

Foreign property: S.B. 13 indicates that Delaware has jurisdiction over unclaimed property if the jurisdiction with primary authority has no unclaimed property law. The proposed regulations, however, addresses only states, but not other countries that have the authority to escheat.

 

Stored value and gift card maximum cost: The proposed regulation would dramatically increase the amount reportable with respect to unredeemed gift cards and other stored value cards to the issuer’s “cost of goods sold [reflected on its federal income tax return for the year] plus total deductions less charitable contributions, depreciation and depletion.” This interpretation expands the amount reportable by an issuer far beyond the cost to the issuer of the merchandise, goods or services represented by the card, in violation of the statutory language.

 

Record retention: Language in the proposed regulations requires holders to retain records not only for property reported to Delaware, but also for property not reported. This requirement exceeds the record retention requirements set forth in the Delaware Code.

 

Examination scope: The scope of examination in the proposed regulations allows the state to begin an examination without having identified the specific entities under audit and provided notice to those entities. The Fourth Amendment prohibits such “fishing expeditions” for the purpose of identifying whether or not a company may be a proper target for audit.

 

In addition, Delaware law allows the state to examine the records of a purported holder “upon reasonable notice.” Once notice is given, the statute authorizes examination of the holder’s own records, and may even extend to certain records in the possession of a third party or an affiliate. However, the proposed regulations attempt to expand that authority by deeming all entities “related” to the holder as under examination themselves, without the required, reasonable notice.

 

Certification/record availability: The proposed regulation assumes fraudulent intent on behalf of holders and fails to account for the realities of corporate life. The proposed requirement that holders “certify” to the “availability” of “records,” on a strict liability standard of fraud appears to be based on the inaccurate assumption that companies operate through a single software system, which houses all information for all years and all operating divisions. As a result, failure to provide information must be based on malicious intent. This is simply not accurate for most holders.

 

Without any limitation on the terms “availability” and “records,” personnel involved with the audit will have difficulty convincing any officer to certify to such a vague and ambiguous statement under the threat of strict liability for fraud, creating unnecessary conflicts within the audit process. In addition, deeming even inadvertent errors to be “willful misrepresentation” on the part of the holder undermines any purported desire of the State to work collaboratively with holders.

 

Sampling: The Temple-Inland decision and order specifically required that, in the department’s estimates, the sample must be a surrogate of the property that was being estimated. To that end, if Delaware intends to estimate what was due to the state for years in which records are not complete, the sample must include only property that would be due to Delaware. Unfortunately, the proposed regulations simply memorialize the process the judge rejected in Temple-Inland.

 

Complete and researchable records: The proposed minimum standard for what constitutes “complete and researchable” records is unclear. It suggests that a complete and researchable record shall include items that contain a last known address of the property owner. However, this standard has not always been an accurate test to determine researchability. An address alone does not make a transaction researchable.

 

Remediation: The proposed regulations dictating the terms of what can be considered remediated extend far beyond any authority granted to the department or its auditors by S.B. 13. While it may be appropriate to indicate certain elements that are required or desirable in correspondence to Delaware owners, it is beyond the department’s jurisdiction to require the language proposed in the proposed regulations.

 

Omitted issues: The proposed regulations fail to clarify or include issues including the expedited audit examination created under § 1172 (c); the 10-year statute of limitations set forth in § 1156 (b); and interest and penalty provisions in § 1183 and § 1184.

 

On behalf of its members, UPPO has raised questions related to these and other sections of Delaware’s proposed regulations via a letter to State Escheator David Gregor , submitted this week. UPPO will continue to monitor implementation of S.B. 13 and Delaware’s proposed regulations, and will report on additional developments.

 

 

Tags:  audits  compliance  Delaware  examinations  S.B. 13  unclaimed property 

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UPPO Scholarship winners have big goals

Posted By Administration, Wednesday, April 26, 2017

For the first time, the UPPO Scholarship Program expanded this year, awarding financial assistance to two students. Announced at the Annual Conference in March, this year’s scholarship recipients are Taylor Steffans, daughter of UPPO member Heather Steffans, and Andrew Noel, son of UPPO member Charolette Noel. Each of them receives a $1,000 renewable scholarship.

 

Taylor Steffans

Taylor is a senior at the University of Iowa, graduating next month. She is enrolled to continue her studies at the university’s college of dentistry beginning in the fall. Until his retirement from dentistry eight years ago, Taylor’s grandfather was her dentist. As a result of this family connection, Taylor never developed the sense of dread that often accompanies dentist visits.

 

“I never grew up with that fear of seeing the dentist because I was going to see grandpa,” she says. “I got to see different aspects of dentistry and loved it. I also love the sciences and helping people. Getting to boost people’s confidence by giving them a good smile really attracted me to the field.”

 

As part of her preparation for dentistry school, Taylor job-shadowed several different types of dentists, including a general dentist, an orthodontist, an oral surgeon and a pediatric dentist. This experience helps ensure students are truly cut out for the profession and helps them identify their long-term goals. Taylor was especially intrigued by oral surgery and may pursue additional schooling for that specialization after her four years of training qualifying her as a general dentist.

 

As you can imagine, such schooling isn’t inexpensive. Taylor has been working while in school, waitressing and working at the college of dentistry.

 

“As I go through dental school, it’s a huge investment, which carries a very large tuition burden,” she says. “This scholarship helps reduce that burden, allowing me to have less stress about finances and focus on my studies rather than having to potentially working more on the weekends. I want to put all of my effort into becoming the best dentist I can be.”

 

In addition to her schooling and work commitments, Taylor is involved in several other activities, including participation in the Pre-Dental Club, leadership positions in the Tri Delta sorority, volunteering for the Students Today, Alumni Tomorrow campus event planning group and intermural sand volleyball.

 

Andrew Noel

Andrew is a high school senior, preparing to begin college in the fall at Purdue University. He is planning to major in aerospace engineering with a goal of working for a company involved in going to Mars.

 

“I’ve really enjoyed studying space and flight, and I enjoy making new things that people haven’t seen before,” he says. “One of the best ways to do that is to see what’s out there in space. I’d like to work with a company to help them get to Mars. There are a lot of challenges in that direction that I’d really like to see accomplished. If I could help do that, it would be awesome.”

 

Andrew’s interest in space travel led him to start a rocketry club at his high school last year. The 10-member club participated this year in the Team America Rocketry Challenge. They created a model rocket designed to blast 800 feet in the air, carrying an egg as its cargo, taking off and landing within a small window of 41-43 seconds.

 

In addition to his scientific aspirations, Andrew has a longtime love of music, which he has nurtured by playing viola since the fifth grade. He plans to continue playing in college as well.

 

Andrew appreciates the financial relief provided by the scholarship and encourages other students to apply.

 

“Paying for college is a challenge for a lot of students,” he says. “This scholarship will definitely help me with that, and can help others who apply and win in the future. Every opportunity helps, so take advantage of anything that can help achieve your goals.”

 

Special thanks to this year’s corporate sponsors Barganier and Associates and Mike Ryan. UPPO members interested in supporting the scholarship are encouraged to contribute or sponsor the program. The 2018 UPPO Scholarship Program application period will occur in the fall.

 

 

Tags:  UPPO Scholarship Program 

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Uh-oh! I missed the deadline

Posted By Administration, Thursday, April 20, 2017

As more companies become familiar with their unclaimed property compliance responsibilities, many are likely to find that they have obligations past due to one or more states. Barrie Saltzman, escheatment officer for CIT Group, and Jenna Fenelli, senior manager in KPMG’s state and local tax practice, provided insight into the risks of noncompliance and steps to achieve compliance during their 2017 UPPO Annual Conference session, “Uh-oh, I Missed the Deadline.”

 

Risks of Late Filing

States typically charge penalties and interest when unclaimed property is not escheated in a timely manner. For example, California charges 12 percent interest, plus $100 per day up to a $10,000 maximum for late reporting, and between $5,000 and $50,000 for late delivery. Nevada charges 18 percent interest, plus $200 per day up to a $5,000 maximum in addition to a $1,000 per day fine for willful failure, up to a maximum of $25,000 plus 25 percent of the property’s value.

 

In other words, noncompliance isn’t cheap.

 

“In addition to penalties and interest, late filers also need to consider other issues,” Fenelli says. “Filing a bunch of late properties to a state can raise a flag. If they see you’ve never filed there before and suddenly you’re filing a bunch of late accounts payable checks, they may wonder what other property hasn’t been filed and decide to perform an audit.”

 

Other risks include potential penalties for improper due diligence mailing, reputational risk and damage to customer relationships.

 

Mitigating Risks

Some states allow for extension filings. They may offer a request form, such as California’s, which is due at least 30 days before a reporting deadline. Similarly, New York requires its form submission at least 30 days before the reporting deadline along with estimated payment. Other states, such as Massachusetts and Vermont, don’t have a form but accept requests via letter.

 

“Filing for an extension is an easy process,” Saltzman says, “but you need to be aware of the timing to ensure your request will be considered for acceptance.”

 

Voluntary disclosure agreements (VDAs) provide another option for property holders wishing to come into compliance. Again, each state is different. If a state offers a VDA program, it may have a formal, well-defined process. Some, however, have less formal VDAs for first-time filing programs, by which companies send a letter with their first filing, stating that they’re coming forward in good faith, want to be in compliance, and have put measures in place to mitigate the risk from happening again.

 

“With a voluntary disclosure agreement, aside from the benefit of a penalty and interest waiver, some states will allow for the VDA lookback period to be closed off from audit,” Fenelli says. “Not having to worry about an audit from that state when coming into compliance is a great benefit.”

 

Ensuring Future Compliance

As holders work to get control over their unclaimed property compliance efforts, they should focus on several internal areas: 

  • Policies & Procedures: A corporate policy should clearly outline compliance obligations and the roles and responsibilities of the escheat department, operations, accounting, legal and others that are applicable to each specific company. Procedures should describe a step-by-step process for handling unclaimed property from the gathering of the data, securely managing it, corresponding general ledger activity, due diligence and state reporting.
  • Training: If employees aren’t trained to understand it, they usually have no idea what unclaimed property is. There needs to be ongoing training throughout the company about what constitutes unclaimed property, how to identify it and who is responsible.
  • Assigning Clear Ownership: Someone must have overall ownership for oversight of the process. The day-to-day functions may be assigned to others.
  • Centralization: By centralizing the unclaimed property function, holders ensure there is a uniform process throughout the company. They also have unclaimed property subject matter experts available to provide insight as the company changes.
  • Industry Involvement: Becoming involved in organizations like UPPO offers access to ongoing education, idea sharing, best practices and the ability to stay current with legislative updates.
  • Technology: Without using unclaimed property software, holders expose themselves to more potential mistakes. There’s way too much information to maintain manually, so the risk of missing something increases when software isn’t used to. It’s best to eliminate as much manual work as possible.

 

“If your company doesn’t have a UP [unclaimed property] program in place, you’re not alone,” Saltzman says. “There is hope, and you will get there. Coming into compliance and putting the proper procedures and processes in place will help reduce the risk of penalties and interest in the future.”

 

To help with compliance efforts, UPPO members can access the Jurisdiction Resource Guide, which provides reporting deadlines, dormancy periods by property type, due diligence letter requirements, exemptions and deductions, and other helpful information for U.S. and Canadian jurisdictions.

 

 

Tags:  compliance  unclaimed property  VDAs 

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