Unclaimed Property Update: Compliance with Escheatment Regulations

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(1)Unclaimed Property Update: Compliance with Escheatment Regulations. FEATURED FACULTY: Karen Anderson, Vice President, Reporting Compliance, Keane Unclaimed Property 317.577.9530 kanderson@keaneup.com.

(2) Karen Anderson, Vice President, Reporting Compliance, Keane Unclaimed Property Karen Anderson has been involved in the unclaimed property compliance industry for almost 30 years and has been in the forefront of unclaimed property holder education and training. At Keane Karen assists holders with and serves as a liaison with state administrators regarding reporting issues. At the beginning of her career, Karen was on the policy staff of a former Illinois Governor, assigned to guide policy and programs relating to state business regulation. For five (5) years, Ms. Anderson served as Illinois' Unclaimed Property Administrator and later served as the first Director of the National Association of Unclaimed Property Administrators (NAUPA). Anderson holds a law degree from Loyola University of Chicago. Ms. Anderson is a former Board member and past President of the Board of the Unclaimed Property Professionals Organization “U-P-P-O” and is a co-chair of the UPPO Government Relations and Advocacy Committee. Also, she is a member of the Securities Transfer Association’s Unclaimed Property Committee. She frequently speaks at industry association conferences and writes articles for trade publications..

(3) **Certificates of attendance and CEUs, when available, must be requested through the online evaluation.**. Evaluation for Live Event: We’d like to hear what you thought about the audio conference. Please take a moment to fill in the survey located here: http://www.c4cm.com/handouts/042016.htm. Requests for continuing education credits and certificates of attendance must be submitted within 10 days of the live event.. Evaluation for CD Recording: Please use the following link to submit your evaluation of the recorded event: http://www.c4cm.com/handouts/CDEval.htm.

(4) The Hunt for Unclaimed Property The Current Realities of Compliance and Enforcement. By: Karen Anderson Vice President – Reporting Compliance Keane Unclaimed Property. Disclaimer This presentation is provided for educational purposes only Keane Unclaimed Property is not rendering accounting, business, financial, investment, legal, tax, or other professional advice or services with this presentation. Further, this presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Keane Unclaimed Property, their affiliates and related entities are not responsible for any loss sustained by any person who relies on this presentation.. 1.

(5) Agenda • Gain an understanding of important background concepts • Explore the unclaimed property risk and best practices for managing it • Identify audit triggers • Consider the audit steps and suggested tips • Discuss recent audit-related lawsuits and legislation. Unclaimed Property Nuances • • • • • •. 4 Uniform Act Versions: 1954, 1966, 1981, 1995 No statute of limitations in most state laws Contract auditors – some paid by contingency fee State “stands in the shoes of the owner” Lengthy record retention requirements “Last Known Address” v. Sufficient Contacts. 2.

(6) Unclaimed Property Basics: The Uniform Acts •. • • •. • •. •. 1954 – Uniform Disposition of Unclaimed Property Act (UDUPA) created by the National Conference of Commissioners on Uniform Laws (NCCUL) 1966 – The 1954 UDUPA was amended by the NCCUL 1981 – The Uniform Unclaimed Property Act of 1981 was created (many state laws are substantially modeled on this act.) 1995 – The Uniform Unclaimed Property Act of 1995 (UUPA) was created (about 14 states have adopted this Act in pertinent part) Non-Uniform Act states: California, New York, Delaware July, 2013 – The Uniform Law Commission (formerly NCCUL) decides to rewrite the 1995 UUPA over the next 3 years – final draft due July 2016.. 55 Reporting jurisdictions throughout the United States and territories. No two jurisdictions have exactly the same law.. Unclaimed Property Acts: A Disguised tax? • Objective - Consumer Protection or Revenue Initially, in the 1950s, when the 1954 UDUPA was written the new state UP laws were focused on consumer protection: • Goal was to prevent companies from being unjustly enriched by holding property belonging to others. • Benefit citizenry of a state in the event unclaimed funds are never claimed.. 3.

(7) Unclaimed Property Basics: A Disguised tax? (2) Objective - Consumer Protection or Revenue? • Today, its questionable whether these laws are for consumer protection or an indirect source of revenue • Many states like Arizona, Michigan, Pennsylvania and South Dakota reduced dormancy periods in the past few years to balance their state budgets • Other Methods – New property types (i.e. HSAs, IRAs), long audit reach backs and estimation, changing reporting deadlines (Michigan and Texas) • California UP Revenue: 5th largest source • Delaware UP Revenue: $631M; 15% of the state budget; up from 3% in 1990. Unclaimed Property Basics: Key Terms •. Intangible personal property: Property held, issued or owing in the ordinary course of business that has remained unclaimed by the apparent owner for a specified period of time after it became payable or distributable is presumed abandoned. Accounting errors are NOT unclaimed property.. •. Holder: An individual or legal entity (public or private) in possession of property belonging to another.. •. Owner: An individual or legal entity (public or private), government or governmental subdivision who has a legal or equitable interest in property.. •. Cut-off, End or “As of” Date: The date through which a Holder must search its records to determine if it is in possession of unclaimed property.. •. Dormancy Period: The number of years (generally 1,3, or 5) from the date of last contact with the Owner property must be unclaimed before it is considered abandoned.. •. Reporting Deadline: Date report and property due to state. A very few states have different dates to report and deliver property.. 4.

(8) Basics: Unclaimed Property Defined Unclaimed Property: Any intangible personal property that is held, issued or owing in the ordinary course of business and has remained unclaimed by the apparent owner for a specified period of time after it became payable or distributable is presumed abandoned. • Due and Owing / Payable and Distributable • Fixed and Certain • No Owner-Generated Act. Basics: Common Unclaimed Property Types. • Vendor/Claims Items – Accounts Payable • uncashed vendor checks • uncashed checks for services, rent, etc.. • Credit Memos/Balances – Accounts Receivable • Credits that occur when: • • • • •. A duplicate payment is received. A credit is issued for a product return or other reasons. A rebate is issued as a part of a company rebate program. Overpayments Refunds. • Unapplied Cash - A payment is received for which no receivable can be identified. 5.

(9) Basics: Common Unclaimed Property Types (2) • Payroll Items • Wages, Salary Payments (often unclaimed property in this area is due to Retired, Terminated and/or Overseas Employees) • Employee Expense Payments (Travel, Parking, Home Office, etc.) • Employer-Sponsored Benefit Payments (Self-Insured Employer). • 3rd Party Disbursements/Checks (i.e., Payroll, Benefits, Securities, etc.) • Industry Specific Items • Uncashed Insurance Claim Payment Checks • Uncashed Royalty Checks • Uncashed Dividend Checks. Basics: Financial Institution-Related Unclaimed Property Types Checking Accounts Savings Accounts Money Orders Cashiers Checks Certified Checks Travelers’ Checks Certificates of Deposit / Timed Deposits • Savings Certificates • Safe Deposit Box Contents • • • • • • •. • IRA distributions • Keogh distributions • Coverdell/Education Savings Account distributions • UGMA /UTMA accounts • Corporate and Personal trust distributions. 6.

(10) Securities-Related Unclaimed Property Types ● Equity Securities • Uncashed dividend checks • Stock certificates returned by the post office (“RPO”) • Stock or underlying uncashed dividends • Unexchanged Shares • Mergers • Acquisitions • Mutual Funds • Book entry shares (RPO statements). Securities-Related Unclaimed Property Types (2) ● Debt Securities. • Uncashed Interest Payments • Redemption Proceeds • Matured Bond Principal • Called Bond Principal • Unused Bond Coupons. 7.

(11) Unclaimed Property Basics: Which State Law Applies? Texas v. New Jersey (US Supreme Court-1965) and later cases established the following “Priority” rules: 1. Last known address of the owner/payee/creditor controls 2. When no address sufficient for mailing or owner is unknown, the business’ state of incorporation controls 3. If the state does not have a law governing the property, the business’ state of incorporation controls. Unclaimed Property Basics: Which State Law Applies - Example Example: Scheat National Bank (SNB) customer, Moni Baggs, had a checking account for which there had been no owner generated activity for 5 years. Moni’s address in SNB’s records is located in Oklahoma. SNB’s headquarters is in Maryland. The bank branch Moni uses most often is just over the border into Texas. Which state’s unclaimed property law would apply to Moni’s checking account? a. Texas b. Maryland c. Oklahoma. 8.

(12) Example Answer. Answer: c. Oklahoma. This is the “first rule” of Texas v. New Jersey.. Unclaimed Property Basics: Which State Law? - Foreign Property • 1981 and 1995 Uniform Unclaimed Property Acts: • If all the criteria for determining abandonment is met and the owner’s address is in a foreign country, the law of the state of the holder’s domicile/incorporation controls. • The unclaimed property law does not apply to property, “held, due and owing in a foreign country and arising out of a foreign transaction.” • In their notes, the drafters of this law state that, “wholly foreign transactions are excluded from the coverage of the Act.” “Wholly” means: Both the owner and holder must be foreign country nationals.. 9.

(13) Unclaimed Property Basics: Which State Law Applies - Foreign Property. • Holder is a Foreign Business? • If the holder is a foreign country business association, the laws of the country and locality under which the business is located or organized would apply. • Example: Note that Alberta, Canada has an unclaimed property statute much like those in the United States. A dormant, uncashed check issued by a corporation located in Alberta and organized under Alberta law, to an owner with an Alberta address would most likely be governed by the Alberta unclaimed property law. Unclaimed Property Basics: Which State Law Applies - Foreign Property. • Owner Address in United States? • owner’s address is in the United States and the holder is a foreign country business association • Result: the state of the last known address of the owner has the right to take custody of the property presumed abandoned/unclaimed. For a state to assert its claim in this situation, the foreign country business association must be amenable to service of process in one of the states of the United States.. 10.

(14) Unclaimed Property Basics: Statute of Limitations • If a business has not been in compliance or has not been fully compliant is there any relief from liability and/or penalties and interest? Generally, the answer is “no”. Consider the following: • Statute of limitations: • Most states do not provide relief from reach-back based on a “statute of limitations.” • Some states have a “statute of limitations” provision in their UP laws, however, the limitation period is usually longer than that applicable in tax regs and normally includes the dormancy period PLUS a period or years. • Failure to report or the filing of a fraudulent report eliminates reach back relief afforded by statute of limitation provisions.. Unclaimed Property Basics: Dormancy and Eligibility • Dormancy: States have enacted unclaimed property laws to require that such property be turned over to the state after a statutorily prescribed period of time has elapsed, known as the “dormancy” or “abandonment” period. • Eligibility: When the applicable dormancy period has run, the property is “eligible” for reporting and remitting. When an item is “eligible” the holders’ obligations of statutory due diligence and reporting are triggered. • Escheat: The process of remitting the property to a state is known as “escheat”.. 11.

(15) Unclaimed Property Basics: Dormancy and Eligibility The applicable state statute will determine the following which are important to determining dormancy and eligibility: 1. Dormancy period for the property type 2. “As of”, “Cut-off” or “End” date 3. Reporting deadline. Examples of Dormancy Periods & “Cut-off Dates” For Business Associations (non-financial / non-insurance) Accounts Payable (MS08). Vendor Checks (CK13). Payroll Checks (MS01). Credit Memos/Balances (MS09). Dividends (SC01). Annual Reporting Deadline. As of / End Date. California. 3 yrs. 3 yrs. 1 yr. 3 yrs. 3 yrs. 10/31 (Notice Report). 06/30. Delaware. 5 yrs. 5 yrs. 5 yrs. 5 yrs. 3 yrs. 3/1. 12/31. Illinois. 5 yrs. 5 yrs**. 1 yr. 5 yrs**. 5 yrs. 11/1***. 6/30** *. Indiana. 3 yrs. 3 yrs. 1 yr. 3 yrs. 3 yrs. 11/1. 6/30. Michigan. 3 yrs. 3 yrs. 1 yr#. 3 yrs. 3 yrs. 7/1. 3/31. New York. 3 yrs. 3 yrs. 3 yrs. 3 yrs. 3 yrs. 3/10+. 12/31 +. Nevada. 3 yrs. 3 yrs. 1 yr. 3 yrs. 3 yrs. 10/31. 6/30. Texas. 3 yrs. 3 yrs. 1 yr. 3 yrs. 3 yrs. 7/1. 3/1. State. **May be exempt under certain circumstances. ***Business Associations & Life Insurance Companies report 5/1 with 12/31 end date. +NY deadlines vary by industry, i.e., banks- 11/1 w/ 6/1 end date and ins companies- 9/10 w/ 6/30 end date. # Under $50 exempt.. 12.

(16) Unclaimed Property Basics: Dormancy and Eligibility Layzfirm, LLC. was issued a credit by Bizico, Inc. for an overpayment. The credit issue date was Feb. 14, 2013. Layzfirm’s address in Bizico’s records is in Las Vegas, Nevada (Customer Overpayment = MS05 = a 3-year dormancy period). Would the value of the credit be reportable on the 10/31/16 Nevada reporting deadline? a. No b.Yes. Example Answer: Answer: Yes – Do the Math! • NV 2016 End Date = 2016/6/30 • LAD or Issue Date = 2013/2/14 • Dormancy Time = 3 yrs, 4 mos, 16 days • NV Dormancy Period (MS05) = 3 yrs. 13.

(17) Unclaimed Property Basics: Eligibility Formula. ED - ID / LAD = DT If DT is greater than DP, then the item is eligible.. Unclaimed Property Basics: A Holder’s Obligations The basic holder compliance obligations* are: 1. 2. 3. 4.. Record Review / Internal Due Diligence Statutory Due Diligence Reporting and Remitting Record Retention. *Specific compliance requirements vary by state.. 14.

(18) A HOLDER’S OBLIGATIONS. RECORD REVIEW. Compliance Fundamentals: A Holder’s Obligations – Record Review Common Items to review: Disbursements (i.e., dividends, royalties) Vendor Checks Payroll Checks Credit Memos / Balances Outstanding check/payment lists (including payments made by 3rd parties) Industry specific items (checking and savings accounts, insurance claims payments, etc.) Timing: • Records should be reviewed at least once a year but preferably every 60 - 90 days to stay current Materiality Limit: • Set a materiality limit for your review. Policies and Procedures • Review steps should be in P& Ps • • • • •. 15.

(19) Record Review: Procedures Owner Contact/ In-House Info Sources 1. Review “in-house” data to determine if there has been contact with the owner or there is a better address to use in contacting the owner: • For A/P items, check vendor master list for a second address or for the address of a parent co or for a related subsidiary. • For payroll-related UP, determine if the employee has been terminated or transferred, access retirement info. For customer/client accounts: • Search internal data pertaining to other types of accounts that the individual or business has with your organization (if found, look for a change of address or activity by the owner on the other account) •. Review all types of communications sent to or that are possible from the customer, i.e., documented telephone calls or internet (verifiable access) regarding the account, proxy responses, increases or decreases in the account value caused by the owner, etc.. Record Review: Procedures Owner Contact / External Info Sources When practical or as required, identify a better address for the owner and contact the owner: • Free Internet Sources (i.e. anywho.com, freepeople-search-engines.com, switchboard.com) • Government or commercial database searches (i.e., credit bureaus, Social Security Administration Death Index, etc.) or other services designed to locate the customer/owner or next of kin. 16.

(20) Record Review: Procedures Considerations – A/P Review the data for accounting errors – A/P: Re-issues without voiding original. Duplicate payments. Incorrect payee. Inter-company payments . Periodic/recurring payments (utilities, rent, etc.) Reconciliation error (i.e., Bank rec has checks w/ sequential numbers outstanding/bad check run). • Large dollar checks with familiar payee names. • Check represents payment for an invoice for which a credit was issued. • EFT’s issued simultaneously. • • • • • •. Record Review: Procedures Considerations – A/R 2. Review the data for accounting errors – A/R. Validity of the credit: • Was the credit applied to an invoice but not deleted from the account record? • Was the credit recorded twice? • Is the credit really unclaimed property? (i.e. promotional?) Offset: • Does the customer have a past due invoice outstanding? • Have past invoices been written off to which the credit can apply? • Is the customer with the credit also a vendor with a debit balance in AP to which the credit can be applied?. 17.

(21) Record Review: Procedures Considerations - Industry Specific Review the data for accounting errors – Industry Specific • Mistaken postings to account • Computer application errors? • Misapplied funds • Insurance offers settlement (unclaimed property?) • Unperfected rebate? (unclaimed property?) • Claim disavowed or incomplete? (sitting in agent’s drawer?) • Other types of items in a “pending” status. Record Review: Procedures Considerations – Exemptions Is the property exempt from reporting? • Business to Business Exemptions (tricky) Generally, for MS09 Credit Memos, some CK13 vendor checks) AZ, IL, IN, IA, KS, MD, MA (ltd), MI, MO, NC, NV, OH, TN, VA, WI (WY – ltd to gift cert. merch. credits) • Deminimis Exemptions – Examples: • Colorado – 2% of property remitted or $25? • Florida – $10 or less credit balances, customer overpayments, security deposits & refunds • Kentucky, Michigan, Ohio – Wages less than $50. • Gift Certificate / Card Exemptions (tricky). 18.

(22) Record Review: Suggested Practices Summary 1. Review research outstanding items on a regular basis (60 – 90 days) for accounting errors, familiar payee names, offsets, or exemptions. Set a materiality limit. 2. Review supplemental information that may lead to the address of item owner 3. Establish contact with the owner through correspondence and telephone calls. Implement owner location measures as appropriate. 4. Retain documentation (including journal entries, etc.) of reversals due to research or contact. 5. Maintain written procedures for review and compliance. Make them a part of your company’s policy or manual. 6. Assign one person to be responsible for escheat compliance, and insert this in their job description to insure continuity.. A HOLDER’S OBLIGATIONS. STATUTORY DUE DILIGENCE. 19.

(23) Statutory Due Diligence: Important Elements • Methods – Letter via first class mail and/or certified mail and/or publication, etc. • Letter Content • Timing – 60 to120 days? 6 months? • Limitations/Exceptions – DE letter requirement only for securities, PA no letter requirement • Due Diligence Minimums • Special Requirements (i.e., OHreturn envelope) • Allowable Deductions. Statutory Due Diligence: Methods and Letter Content • 1. Methods: – a. Generally – A letter to the owner at the last known address in the records of the holder – b. Delaware and New York require publication in newspapers for certain industries and under certain conditions – c. Electronic Due Diligence – Is it acceptable?. • 2. Letter Content: a. Generally -1995 Uniform Act (Section 7e): – Must state that the holder is in possession of the property subject to the unclaimed property law – Must state that the claim of the owner is not barred by the statute of limitations – That the value of the property is greater than $50.. 20.

(24) Statutory Due Diligence: Methods and Letter Content - CA • 2. Letter Content (continued): b. California - For accounts valued at over $50, notice must be sent not more than 6 to 12 months prior to reporting deadline and the following information must be included in the notice and must be in bold type or type 2 points larger than the rest of the notice: 1. the time when the property will escheat to state and effect of a escheat; and 2. statement that since the date of last activity there has been no customer, client, payee activity; and 3. identification of the deposit, account, shares, etc. by number or identifier; and 4. statement that the item in “in danger” of escheatment to the state. Also, a form for confirming the owner’s current address must be included for response. Plus, California requires specific language to be printed on the top of the letter.. Statutory Due Diligence: Methods and Letter Content - CA. http://www.sco.ca.gov/FilesUPD/guide_rptg_holderhand book.pdf pg 80. 21.

(25) Statutory Due Diligence: Methods and Letter Content 2. Letter Content (continued): c. Important inclusions – 1. A statement that the property will be delivered to the. state if no action is taken 2. A statement that the state is the custodian and the owner does not lose his/her rights to the property 3. A date by which the owner must respond and/or a direct request for the owner to respond 4. Instructions for responding (i.e., how to contact the holder, the methods for responding and/or receiving the property, how to effect an address update, etc.). Statutory Due Diligence: Timing 3. Timing: Generally – Not more than 120 days nor less than 60 days prior to the reporting deadline. (1995 Uniform Act, Section 7(e)): AR, DC, FL, GA, IL, IN, KS, KY, LA, ME, MT, NE, NV, NH, NJ, NM, NC, TN, UT, VT, WV, WI. OTHER TIME PERIODS: •. • •. • • •. •. •. Within 120 days prior to filing report: AK, CO, ID, MN, ND, OK, RI, SC, VI, WY At least 30 days prior to filing report: OH At least 60 days prior to filing report: AL, MA, VA At least 90 days prior to filing report: OR At least 120 days prior to filing report: AZ Within 30 to 120 days prior to filing the report: MD Within 60 to 365 days prior to filing the report: MI Within 180 days prior to filing report: HI, CT*. Within 90 days for the first attempt and 2nd attempt within 60 days if over $1000: NY* (certified mailing required on second attempt) • Within 1 year prior to filing report: MO • Within 180 to 365 days prior to filing report: CA • Required but no timing specified: IA*, MS, SD, WA *Please see state statute for more details. Time frames for due diligence may change as new legislation is adopted. •. 22.

(26) Statutory Due Diligence: Form of Delivery 4. Form of Delivery: a. Generally – No specification in the1995 Uniform Act, Section 7(e), but most states require first class mail. b. Notable exceptions: Iowa - Requires Banks and Financial Institutions only to send due diligence letters by certified mail. The costs of the certified mailing may be deducted from the account by the Bank or Financial Institution New Jersey – For items that are greater than $50, the letter must be sent certified mail, return receipt requested. New York - First notice by first class mail within 90 days prior to reporting deadline; second notice by certified mail, return receipt for $1000+ (cost of certified mail deductible from property reported.) Ohio - Certified mail requirement for items $1000 & greater; costs deductible up to $20 maximum. Statutory Due Diligence: Limitations/Exceptions 5. Limitations/Exceptions: a. DUE DILIGENCE MINIMUMS - By Item Amount/Value: $10 – IL, $25 - NE $50 – AL, AR, AZ, CA, CO, DC, FL, GA, HI, ID, IN, LA, ME, MI, MO, MT, NC, ND, NH, NJ, NM, NV, OH, OK, RI, SC, SD, TN, UT, VI, VT, WI, WV, WY $75 – WA, $100 - AK, KS, KY, MA, MD, MN, OR, VA, $250 - TX No minimum – CT, IA, MS, NE, NY, PR b. No Statutory Letter Due Diligence Requirement– PA c. Self-Addressed Stamped Envelope Requirement-OH d. Publication requirement 1. Delaware - Banks, courts, and life insurance (must publish in newspapers in 3 specified counties) 2. New York - Banking organizations, insurance companies, and utilities must publish in newspaper in city of residence of owner. Due Diligence mailing still required! 3. Puerto Rico has an advertising requirement for businesses incorporated there or that have a place of business there.. 23.

(27) Statutory Due Diligence: Allowable Deductions 6. Allowable Deductions – Examples: • CA – Banks and financial organizations may impose a service charge for the notice in an amount not to exceed $2.00 on items over $50. • DE – Expense incurred for advertisement is deducted from remittance due and with securities mailings, the cost of postage and reasonable admin costs, up to $5 per mailing • IL – May deduct first class mailing costs (postage, stationary, & envelopes) • IA – May deduct cost of mailing from amount owed • NY – May deduct cost of certified mail and return receipt as a service charge. Also, may deduct costs of publication on a pro rata basis (using a specified formula.) • OH – Deductions are allowed up to $20.00 for certified mail • OK – May deduct only the cost of postage. • PR – May deduct expenses incurred in advertising • TX - May take the cost of postage as service charge. Statutory Due Diligence: Why It’s Important •. REPORT COVER SHEET ATTESTATIONS: Many states now require holders to file a report cover sheet with that includes an attestation indicating that they have performed due diligence in accordance with the state’s unclaimed property law. Examples: • North Dakota: “I, being duly sworn on oath, depose and say that I am the holder or authorized to make this report for the holder……and that the holder sent written notice to the owner of the presumed property as required by …” • West Virginia: “I hereby declare, under penalty of perjury, …….In accordance with WV Code Section 36-8-7(e), written notice has been sent to the apparent owner of property over $50.00.”. 24.

(28) Statutory Due Diligence: Why It’s Important • • •. Uphold Reputation and Maintain Accounts: One more chance to reconnect with owner or heirs and keep the account active Avoid DD penalties: Some states have these (ex. Iowa, Missouri and Illinois) Secure release of liability under Unclaimed Property Statutes: • California: Azure v. I-Flow (CA Sup Ct. 7-2009) then: • California UP Law Change (CA SB 1291 enacted 10-11-2009 which amended Section 1560 (a) of the UP Law): If have an address in holder’s records not known to be inaccurate and make reasonable efforts to notify owner by mail or electronically (if have owner’s prior consent to be so notified) and then remit property to CA, the holder is relieved of liability up to the value of the property remitted.. A HOLDER’S OBLIGATIONS. REPORTING AND REMITTING. 25.

(29) Reporting and Remitting Unclaimed Property Important Considerations: 1.Type of Report 2.Report Format 3.Negative Reporting 4.Report Aggregate Limits 5.Form of Remittance 6.Report & Remittance Delivery. 7.Filing Extensions. Reporting and Remitting Unclaimed Property: Type of Report The Report. 1. Type - Paper, Diskette, CD, or Internet a. Some states mandate reporting through their website via report upload. (i.e., Indiana, Texas, Florida) b. Most states require electronic (diskette or CD) reporting if there are more than 10 items to report. Many states no longer accept paper reports at all (i.e., Maine). c. Note that some states that require electronic reporting also require that a hard copy of the report accompany the electronic report.. 26.

(30) Reporting and Remitting Unclaimed Property: On-Line Reporting Type – Internet! Some states have “on-line” reporting through their websites but it varies from an upload of your report to data entry of the report or both. • Florida (need FL Holder # and to register to file this way): https://www.fltreasurehunt.org/jsf/onlinereporting/OnlineReportingRegistration.jsf • Idaho (must create a log-in): https://sto.idaho.gov/UnclaimedProperty/Holder/Login.aspx • Maryland (Need MD Holder and FEIN # and to register first): https://interactive.marylandtaxes.com/business/Compliance/UnclaimedPR/ • Texas (Need to register first ): https://txcpa.cpa.state.tx.us/unclpropholder/welcomeAction.do?action=Holder or (Also has downloadable software to create report to directly upload at: http://comptroller.texas.gov/up/up_disk.php) • Virginia: (Need to register first): https://www.trs.virginia.gov/HoldersUpload/login.asp. Reporting and Remitting Unclaimed Property: Format/Codes 2. Format – a. All states accept the NAUPA II Standard Electronic Reporting Format: http://www.unclaimed.org/uploads/resources/104/naupa-iistandard-revised-12-08-2010.pdf Standard relationship and property type codes listed as well. b. Report Formatting - State Endorsed On-line Cloud Formatting Software: - UPExchange (Cloud Based) http://www.unclaimed.org/reporting/ Other Formatting Software: http://wagers.net/hrs/index.php c. Common Property Type Codes: • MS01 – Payroll, Wages, Salary • MS08 – Accounts Payable • MS09 – Credit Balance • CK13 – Vendor Checks • SC01 – Dividends. 27.

(31) Reporting and Remitting Unclaimed Property: Negatives/Aggregate 3. Negative Reporting - Required by: AZ, CT, DC, FL, ID, IL, IN, KY, LA, MD, MA, MI, MN, MS, ND, NJ, NM, NY, NV, OH, PR, RI, SC, TN, VA, VI, WA (ME – only companies HDQ in ME). • Some states permit both negative reporting on-line. Examples: • Indiana/Negative Reports: https://indianaunclaimed.gov/apps/ag/ucp/reportingHolder.html Ohio/Negative Reports: https://ohiobusinessgateway.ohio.gov/OBG/Membership/Security.mvc/Logi n#MainContainer. 4. Aggregate limits – Most states have a limit under which the property does NOT have to be reported with name and address detail. These items are lumped together by property type and reported as an aggregate lump sum. • $25, $50, & $100 are usual limits but this varies by state. • Most states do not permit reporting of dividends or mineral interests in the aggregate.. Reporting and Remitting: Reporting Deadlines (Non-Insurance, Non-Banking). 28.

(32) Reporting and Remitting: The California Difference • And then there is California…….Taylor v. Westly (federal court decisions in 2007 and CA SB 86 of 2007) • The CA Dual Reporting Scheme: 1. All Entities Except Life Insurance a. Notice Report Due – before 11/1 b. Remittance and Report Due – between 6/1 & 6/15 c. Claims paid between Notice and Remittance Report 2. Life Insurance Companies a. Notice Report Due – before 5/1 b. Remittance and Report Due – between 12/1 & 12/15 c. Claims paid between Notice and Remittance Report. Reporting and Remitting: The Remittance 5. The Remittance – Form a. Cash - (uncashed vendor, royalty, bonus, dividend and payroll checks, credits, refunds) Usually by check written to the appropriate state official or agency. Examples: CO - Colorado Department of Treasury NM– New Mexico Taxation and Revenue Department, Unclaimed Property OK– Oklahoma State Treasurer, Unclaimed Property Division TX - Texas Comptroller of Public Accounts – Unclaimed Property VA - Treasurer of Virginia. 29.

(33) Reporting and Remitting: The Remittance – Electronic Funds Transfer Exception: Some states do not permit checks to be used for the remittance if the total amount is greater than a specified sum. Examples: 1. CA requires that if the sum (including interest penalty amounts) is greater than $20,000 it must be delivered by electronic funds transfer in the specific manner designated in CCP Section 1532. 2. MA requires the if the sum is $10,000 or greater it must be delivered by electronic funds transfer. To do so, the holder must complete and file (annually) with the MA Abandoned Property Division an “Authorization to Agreement for EFT” and it must be approved by the MA APD. 3. NJ requires Fed wire transfers for $50,000 or more. 4. TX law requires holders who paid $100,000 or more during the previous state fiscal year to make subsequent payments by electronic fund transfer. The preferred method is through TEXNET.. Reporting and Remitting: The Remittance, Report Delivery, Filing Extensions 5. The Remittance b. Form – Certificate or Confirmation (stock, mutual funds, book entry shares, etc.) Some states require shares to be liquidated prior to remittance. Most want certificated or book entry shares registered in the name of the appropriate state official, agency or nominee and want them delivered to a specific address(es). 6. Report and Remittance Delivery a. Timing – on or before the deadline specified. (Fall – By Oct 31st or Nov. 1st, Spring – varies , Summer – MI & TX) b. Verifiable delivery is very important. 7. Filing Extensions – a. Notification of state administrator with a good reason - Letter? Form? On-line? b. Estimated, timely payment required? (i.e. ME, NJ, TX). 30.

(34) Reporting and Remitting: Reporting Red Flags Tips – Prevent Reporting Red Flags by: • Making sure your reports/cover sheets are completed and signed (and notarized if required) • Making sure the report reflects the same dollar amount that is reflected by your remittance • Filing negative reports if required • Requesting filing extensions as soon as possible prior to the filing deadline • Using the state prescribed cover sheets and/or holder numbers when filing reports • Filing all property types: securities and general ledgerrelated and filing them accurately. A Holder’s Obligations. RECORD RETENTION. 31.

(35) Record Retention: How Long to Retain? 1. Retention Time Period • 1995 Uniform Act (Section 21) – a holder required to file a report must maintain the records containing the information required to be included in the report for 10 years after the report is filed. (Drafter’s notes to the Act state that records are to be kept for 10 year from the date the property “was first reportable”. ). • CA Admin Code Title 2, Subchapter 8, Article 1, Section 1175 – Holders must maintain records “pertaining to” property reported for 7 years from the date it is or should have been reported. • TX Statutes Title 6, Section 74.103 - Holders must maintain records for 10 years after the property was reportable.. Record Retention: Which Records Should Be Retained? 2. Which Records? • 1995 Uniform Act (Section 21) – Silent on this issue. • CA - Holders must maintain records “pertaining to” property reported or that should have been reported • TX – Statute is specific that records maintained must include: “(1) the name, the social security number, if known, and the last known address of each person who, from the records of the holder of the property, appears to be the owner of the property; (2) a brief description of the property, including the identification number, if any; and (3) the balance of each account, if appropriate”. 32.

(36) Record Retention: Which Records Should Be Retained? (2) Practical Consideration = Audit Protection – At the very least: • Verification of reversals • accounting and data errors • offsets • Evidence of reporting and timely reporting • Evidence of due diligence including certified mailing if it was required. (Note: OH law specifically requires retention of proof of certified mailing, or proof of valid exemption of certified mailing, for at least 5 years from the report filing date or completion of a state compliance audit, whichever is earlier.) • Substantiation for stops and voids. Third Party Administrators (TPAs) & A Holder’s Obligations. 33.

(37) Third Party Administrators (TPAs) and the Unclaimed Property Obligations Types of outsourced disbursements that can create reportable unclaimed property are: • payroll • self-insurance payments • rebate payments • shareholder or bondholder payments (dividends/interest) • Other disbursements (i.e., court settlement payments, etc.) Liability: Most state unclaimed property administrators believe that as the obligation to pay was created by the client business, the client business is responsible for unclaimed property compliance. • TPA Assumes Unclaimed Property By Contract? The client business could still be penalized by the state if the TPA did not perform or did not accurately and timely comply.. Third Party Administrators (TPAs) and A Holder’s Obligations (2) To Minimize Liability for escheatable items held by TPAs: • Require TPA to provide a listing of items that are escheatable on the next state reporting deadlines. • Make escheatment process inquiries a part of any requests for proposal (RFPs) for TPA service • Work with your legal advisor to add accountability measures into TPA contracts: • Require the TPA to provide copies of state reports and/or due diligence letters if they are contracted to perform UP compliance measures. • Insert an indemnification clause into the TPA contract to cause the TPA to reimburse the client business for any loss suffered if the TPA fails to perform as required by state unclaimed property laws. • Add escheatment process review to the list of items for which the client business may audit the TPA.. 34.

(38) Managing the Unclaimed Property Risk. Managing the Unclaimed Property Risk: Evaluating Compliance Evaluating Current Compliance & Insuring Future Compliance: 1. Create a Compliance Team – A/P, A/R, Payroll, tech staff, legal counsel, etc. 2. Consider Organizational Structure & Disbursement Accounts 3. Review Merger and Acquisition History 4. Identify Areas of Potential Non-Compliance & Possible Liability 5. Consider Methods for Remediation and Resolution of Liability (owner location, error research, VDAs, etc. ) 6. Enhance Policies and Procedures to Prevent Future Liability. 35.

(39) Managing the Unclaimed Property Risk: Evaluating Your Compliance Process • Management Buy-In • Task Assignment: Centralized or Decentralized • Some benefits of centralization • • • •. Uniformity of procedures Submitting consolidated returns One voice to state UP offices Greater efficiency in customer research and due diligence. • Challenges of a centralized process: • Ensuring that you have full support of the various internal business partners • Keeping track of new product offerings • Tracking regulatory changes and reporting requirements for a variety of product/item types. Managing the Unclaimed Property Risk: Policies and Procedures Your Policies and Procedures Should Include: • • •. • • • • •. Periodic Generation of Reports of Outstanding Items Research Methods to Identify Potentially Unclaimed Items A Description of the Measures for Resolving Items • Notification of Owners/Vendors re Outstanding Items (Sample Letter in Procedures?) The Procedure for Reporting & Remitting property to the Appropriate State(s) and for Recording same Record Maintenance Standards and Steps/Procedures A Method for Maintaining and Updating Compliance Requirements A Time Table for All of the Above Appropriate Separation of Tasks and Task Assignments. 36.

(40) The Ultimate Unclaimed Property Risk: AUDITS. Audit Triggers • Holder has presence in or is incorporated in state but no reports filed • Holder is large enough to warrant scrutiny • Publicity/holder name recognition • Merger/acquisition/reorganization Activity • Targeted industry, i.e., life insurance, brokerage, oil & gas • Unlawful deductions or large aggregate amounts in previously filed reports • Gaps in reporting history • No reach back on initial reporting • Inadequate due diligence (e.g., high rate of claims) • Inadequate or Incomplete reporting: Amounts reported too small for size of the holder, unlawful deductions, large aggregates, no reach back on initial reporting, not all property types common to your industry are reported • High volume of financial transactions (e.g., Retailers or Distributors) • Unique property types (e.g., IRAs, Gift Cards). 37.

(41) The Chronology of An Audit 1. Notice 2. Schedule 3. Document Requests 4. Sampling and 5. 6. 7. 8.. Extrapolation Initial Findings Report Negotiation Final Report Appeal?. The Audit Notice - Considerations If your company receives an audit notice: 1. Who is performing the audit? • State or third party auditors?) • Which states are involved? • State of incorporation? 2. Which entities are covered in the audit? 3. What is the time period covered (“scope”) of the audit? REACH BACK PERIOD? 4. What audit procedures will be used? (What extrapolation procedures will be used when records are incomplete or nonexistent?). 38.

(42) The Audit Notice – Additional Considerations 5. Will the state(s) or their agent sign a confidentiality and scope limitation agreement? 6. Consider your company’s prior compliance history • Prior Audits / VDAs • Corporate Activity: Mergers, Acquisitions, Divestitures, etc. • Pre-Emptions 7. Should legal counsel and outside expertise be obtained to handle audit issues in a privileged context?. Current Trends and Issues: The Good and The Bad. Keane © 2014. CONFIDENTIAL. 78. 39.

(43) Current Trends and Issues: Contact Standards for Triggering Dormancy States are “re-thinking” the dormancy trigger for particular property types but re-enforcing “activity” as the standard for other property types • Inactivity v. Lost: Dividend Reinvestment Plans? • DE Letter re Deliverable 1099 as proof of activity (May 10, 2012 DE Escheator letter to the Securities Transfer Association). •. Timed deposits impacted. For example: • Alabama (SB112) in 2013 rewrote the UP law provision for automatically renewable deposits by eliminating the stipulation that such deposits in banks are reportable and deemed matured upon initial date maturity. Rewrites the provision such that bank demand, savings or time deposits, including deposits that are automatically renewable are reportable 3 years after the date of maturity, “as extended from time to time” or the date of last indication of interest by the owner.. Current Trends and Issues: State Voluntary Disclosure Programs States that had no or informal voluntary disclosure programs are creating formal VDA programs and states that have had formal programs are modifying them. • Examples: Arkansas, Minnesota and West Virginia programs • New VDA programs require more review and formal work papers • Some have eliminated favorable reach back periods in VDAs (i.e., Florida) • No more “amnesty” programs, except Washington (until 11/1/2016) Statehttp://www.dor.wa.gov/Docs/Pubs/SpecialNotices/2015/s n_15_UCPAmnesty.pdf. •. 40.

(44) Current Trends and Issues: The DE SOS VDP & Holder-Friendly Reform In Summer, 2012 and early 2013 via SB 258 and HB 2, the DE Governor and Legislature passed a law creating a new VDA program in the DE Secretary of State’s office. The parameters are: • Shorter look back period • Businesses not currently under or notified of audit or that have property types not covered in a prior DE audit or VDA are eligible • Abbreviated process and steps anticipate to take 9 months to 1 year. • If process successful in reaching DE SOS acceptance, indemnification and relief from audit for the scope period and years prior for property types covered in the audit. • Program was to sunset June 30, 2015.. • Program extended indefinitely via the passage of DE SB 141 on July 22, 2015 and now required to be offered prior to audit and new shorter look back periods were defined.. Current Trends and Issues: Delaware Reform (1) Delaware SB 228 (2014) - Required the Dept. of Finance (DOF) and the Secretary of State to hold confidential info obtained during audits, settlements or voluntary disclosure agreements. Applies to current & former employees and future & past agreements. Added penalties including fines & imprisonment for confidentiality violations. Reduced failing to file a report penalty. Added a penalty for failure to comply with the UP law. Delaware SCR 59 (2014) - Established the UP task force to study and make findings & recommendations to DE legislature re improving fairness & compliance in the UP program. Delaware SB 11 (2015) – Some of the Task Force recommendations. Limits the # of audits any one outside contractor can be assigned to more than 50% of all exams after 1/1/2015. Requires all contracts with auditors 5 yrs or less in duration & they must provide that the auditor will not employ or compensate senior officials from DOF involved with their work for 2 yrs after the officials leave state employ. Amends the administrative appeal process to provide that the determination of the independent reviewer shall be binding on the Secretary of Finance (SOF) unless properly appealed to the DE Court of Chancery. Directs the SOF to promulgate a detailed manual containing procedural guidelines for the conduct of DE UP exams by 12/31/2015 & to update its regulations accordingly.. 41.

(45) Current Trends and Issues: Delaware Reform (2) Delaware SB 141 (2015) – Implements more Task Force recommendations: • Extends indefinitely the SOS VDA program and prohibits an audit from being conducted unless the holder has been invited in writing to go thru the SOS VDA program first. Failure to enter into the VDA may result in holder being referred to the Dept. of Finance for audit. • Reduces the audit lookback periods & transaction dates for which the DE can seek payment. • Prescribes specific lookback periods for VDAs. • Reintroduces interest penalty of .5%/month on the outstanding unpaid amount & limits it to no more than 25% effective for late filed unclaimed property reported/remitted on or after 3/1/16. • Requires that a holder include in the report a designated contact person employed by the holder & specific contact info Voluntary Disclosure Agreement and Escheat Examination Manual Proposed Regulations (2016) – Notice of rulemaking & proposed rules issued 2/2/2016. Written comments accepted through 4/1/2016. http://regulations.delaware.gov/register/february2016/proposed/19%20 DE%20Reg%20723%2002-01-16.htm. Current Trends and Issues: Michigan Reform 2013-2015 (1) Michigan SB 327 (2014) - Requires the Dept. of Treasury (DOT) to file a request for rulemaking by 1/1/2015 re: 1) standards pertaining to fair and courteous treatment of the public to be followed by DOT’s contractors & consultants & a system for monitoring, 2) ensuring all statutes/rules are applied fairly & consistently & 3) prohibiting DOT from using collection goal/quotas when conducting a tax or UP exam. Provides for damages from the state to the taxpayer if DOT intentionally uses a goal or quota. Michigan HB 4703 (2014) - Creates an audit appeal process. A holder can either file in the MI Circuit Court or seek reconsideration of the examination decision. Upon the reconsideration determination, the holder can file an appeal with the State Administrator (SA). At any time during the reconsideration process, the holder can remove the matter to MI Circuit Court after notice to the state. If the holder appeals to the SA, the SA selects a delegate to conduct the appeal. The delegate can’t be employed by, or contract with, the MI UPD to provide auditing or administrative services for UP Act enforcement.. 42.

(46) Current Trends and Issues: Michigan Reform 2013 – 2015 (2) Michigan HB 4289 (2013)- Sets broad audit requirements. Specifies the info that must be provided to the holder. Provides a standard for when estimation can be used. Requires UP exam be conducted using accepted audit standards & that the UP administrator or audit agent provide holders with a completed audit report. Michigan SB 538 (2015)– Effective 12/22/2015, the MI UP law was amended: 1. Streamlined Audit (SA) Process: Eligible holders receiving an audit notice may elect a streamlined audit process by executing a non-disclosure agreement w/i 30 days from audit notice receipt. The SA must be completed within a time frame jointly developed by the holder and MI UP administrator with the completion goal of w/i 18 mos. after audit notice receipt. The SA cannot include checks voided w/i 180 days from the check issue date. Further, for holders electing a streamlined audit, no action can be commenced by the UP administrator for any holder duty under the UP law more than 4 years after the duty arose. 2. De Minimis Exemption – Except for securities and dividends, property with a value of $25 or less is exempt from reporting and remitting. 3. Retroactive - The bill provisions are retroactive and apply to audits in progress as of 8/15/2015 but not retroactively to contested determinations in litigation before12/22/2015.. Current Trends and Issues: Death Master File Matching. • Audits Used to Change Current Law / Practice Example: Use of the Social Security Death Master File (DMF) matching to trigger liability • Life Insurance Audits by Verus – Large Life Insurer Global Settlement Agreements – Thrivent lawsuits and push back • Broker Dealer Audits – Charles Schwab Settlement (2015) – Morgan Stanley Settlement (2015). • Note that 19 states now have laws requiring DMF matching (4 enacted in 2015): AL, AR, GA, ID, IN, IA, KY, MD, MS, MT, NC, ND, NY, NV, NM, RI, TN, UT, VT. 43.

(47) Current Trends and Issues: Administrative Appeals Michigan HB 4703 (2014) Effective 3/30/2015. Creates a process for a holder of unclaimed property to appeal a determination by the unclaimed property administrator that the holder under-reported unclaimed or abandoned property. At any time during the reconsideration and appeal process, the aggrieved party can remove the matter to Circuit Court after providing notice. Missouri HB 1075 (2014) Effective 7/8/2014. Any holder who has filed a report and is aggrieved by a decision of the treasurer is entitled to a hearing under the MO Administrative Procedures Act & the proceedings instituted by such holder shall be deemed a contested case. Mississippi MS ADC 38-4:6.1 (Administrative Rules Change 2014) – Permits, w/i 60 days after the receipt of a demand notice, a holder to file a written protest and request an administrative hearing. The State Treasurer then may designate a hearing officer to review. The Hearing officer must submit a report to the Treasurer who can accept, modify or reject. Washington SB 6057 (2015) - Permits a holder to file a “petition for review” of any interest assessment.. Keane © 2015. Current Trends and Issues: 3rd Party Audit Limitations North Dakota SB 2058 (2013) – Prohibits the UP administrator from contracting for audits in ND unless there is reasonable cause to believe that the business has failed to comply with the ND UP statute. North Carolina HB 462 (2012) – prohibits Treasurer from contracting for UP auditors to perform audits on a contingency fee basis except for certain audits of life insurance companies. North Carolina SB 810 (2012) – decreases record retention period from 10 to 5 years after the holder files a report. South Carolina HB 4813 (2012) – prohibits the Treasurer from hiring third party auditors for a contingency fee or other basis (can hire on hourly basis) except the Treasurer may join other state(s) in contingent fee auditors' examinations when they don’t include companies whose parent company is headquartered or incorporated in SC & when there is reason to believe that the companies audited are holding funds for SC citizens.. 44.

(48) Current Trends and Issues: B2B Exemptions/Exclusions Michigan HB 4563 (2013) – Creates an exemption from unclaimed property requirements for credit balances, overpayments, deposits, refunds, discounts, rebates, credit memos or unidentified remittances created on or after April 1, 2009 and issued, held, due or owing in any transactions between 2 or more associations. Exemption does not apply to outstanding checks. Missouri HB 1075 (2014) - Among other things, defines business credit and exempts them from the unclaimed property law. Also exempts from the presumption of abandonment any outstanding check, draft, credit balance, customer overpayment, or unidentified remittance issued to a business or association as part of a commercial transaction in the ordinary course of business if the business or association has an ongoing business relationship with the issuing entity. Includes a definition of “ongoing business relationship”. Nevada SB 348 (2015) – Creates an exemption from the presumption of abandonment /unclaimed property requirements for any credit memoranda, overpayments, credit balances, deposits, unidentified remittances, non-refunded overcharges, discounts, refunds and rebates due or owing from a holder that is a business association to another business association that have an ongoing business relationship. This exemption does not apply to outstanding checks, drafts or other similar instruments. An "ongoing business relationship" exists if the holder has engaged in at least one commercial, business or professional transaction involving the sale, lease, license or purchase of goods or services with the business association within each 3-year period that follows the date of the transaction giving rise to the property interest.. Current Issues and Trends: UUPA Rewrite & ABA Model Act Call to Action? – ULC RUUPA Drafting Committee appointed in late 2013. Straw Man drafts distributed 2/2015 and 6/2015, 9/2015, and 2/2016. • Uniform Unclaimed Property Act (UUPA) History. • Uniform Law Commission Schedule (ULC) for UUPA Revisions • 1954, 1966, 1981 and the 1995 Acts • 1995 Act: Alabama, Arizona, Arkansas, Hawaii, Indiana, Kansas, Louisiana, Maine, Michigan, Montana, New Mexico, North Carolina, West Virginia, Vermont, Virgin Islands • Five meetings of the drafting committee held through 3/2016. Last Meeting 2/26-28/2016. • First reading of draft by full ULC held in July, 2015. • Final reading of committee final draft by full ULC in July 206.. 45.

(49) Important Recent Court Cases. Important Recent Court Cases: Staples v. Cook (Delaware court) Rebates Staples was under audit by the Delaware State Escheator which began in Oct. 2005. After reviewing a/p & payroll records, the auditors in Spring 2010 demanded payment for outstanding items from 1995 to 2003. • Some of the a/p property included in the State's liability calculation consisted of unclaimed rebates that were issued in connection with the sale of inventory to Staples's business customers. Many business customers entered into supply contracts whereby Staples agreed to give the customer a “rebate,” if it purchased a minimum volume during a 1 yr period. • In April 2010, Staples sued Delaware requesting a declaratory judgment. Delaware filed a counterclaim. • Delaware Court of Chancery issued ruling on Feb. 2, 2012, that “rebates” issued in the form of checks or credits are included in DE definition of “property” set forth in 12 Del. Code sec. 1198(11), therefore, Delaware’s claims to rebates are not barred by any statute of limitations. 46.

(50) Important Recent Court Cases: DE Dept. of Finance v. Blackhawk Engagement Solutions, Inc. (Delaware court) • In November, 2015 the Delaware Department of Finance (“DOF”) brought suit against Blackhawk Engagement Solutions, Inc. (“Blackhawk” formerly Parago, Inc.) incorporated in Delaware. • Blackhawk is a third party rebate processor serving retail company clients. • The action was brought to enforce the administrative summons that the DOF served on Blackhawk in February, 2015 under which the DOF sought sworn testimony and the production of documents (including client contracts) related to uncashed rebate check payments returned to Blackhawks client companies or subject to an express pertransaction fee discount to its client companies.. 2014 Significant Enacted Legislation Pennsylvania HB 278 (2014): Many changes including: • Reduces the dormancy period for most items from 5 to 3 years • Changes the trigger for the running of the dormancy period for many property types by adding that the owner must not have “indicated an interest in the property” and defines that phrase to include secure password verified electronic contact by the owner. • Includes authorization for the state to hire third party auditors & provides specific authority for the treasurer to audit disbursing & transfer agents. • Permits the treasurer to estimate liability when a holder has not kept sufficient records & to assess audit costs against the holder at $200 per day per auditor or a greater amt that is reasonable & incurred. • Defines the dormancy trigger for IRAs (i.e. Roth IRAs), retirement plans for self employed persons, or similar plans which are not subject to mandatory distribution requirements as reportable 3 years after the owner has attained age 70.5 or 3 years from when the owner has indicated and interest in the property or in other property in the holder’s possession or control. Iowa HB 2296 (2014) - Exempts gift certificates redeemable for merchandise only (GCMO) which do not have an expiration data or deduction for charges/fees. All other such GCs have a 5 yr dormancy from the date of issuance. Applies to GCMO sold after 7/1/2014.. 47.

(51) 2014 & 2015 Significant Enacted Legislation Missouri HB 1075 (2014) - Reduces the dormancy period for payroll items from 5 to 3 years effective 1/1/2015. Defines business credit and exempts them from the unclaimed property law. Also exempts from the presumption of abandonment any outstanding check, draft, credit balance, customer overpayment, or unidentified remittance issued to a business or association as part of a commercial transaction in the ordinary course of business if the business or association has an ongoing business relationship with the issuing entity. Includes a definition of “ongoing business relationship”. Establishes a statute of limitations; the treasurer cannot enforce the UP law for a reportable period of more than 3 years after a holder filed a report or gave express notice to the treasurer of a dispute under the UP law. Wyoming HB 42 (2015) - Increases the dormancy period for gift certificate, merchant stored value card or credit memos that are greater than $100 to 5 years (from 3 years) after the later of its issuance date or last owner activity (including partial use) or in the case of merchant stored value card, an increase in the card balance purchased by the owner. If a gift certificate or merchant stored value card has no expiration date and does not impose a fee other than an initial charge not exceeding the face value of the certificate or card, it is exempt from escheatment. Effective July 1, 2015.. 2015 Significant Enacted Legislation Arkansas HB 1782 (2015) – Reduces dormancy periods from 5 to 3 years for bonds, banking property including CDs, property payable or distributable in the course of a demutualization of an insurance company, mineral proceeds and all other property not specifically addressed in the statute. Requires that particular information be reported for mineral interests. Effective 7/22/2015. Louisiana HB 692 (2015) - Modified what qualifies as an indication of an owner’s interest. Added to the phrase, “The making of a deposit to or withdrawal from a bank account” is the language, “including any onetime or recurring clearing house transaction or any other electronic transaction that is owner-directed or otherwise authorized by the account owner.” Also added as indication of the owner’s interest is "accessing of a deposit account by the owner through the website or other restricted electronic access point of the banking or financial organization”. Effective 6/29/2015. Michigan SB 538 (2015)– The MI UP law was amended to include a streamlined audit process and a $25 de minimis exemption. Effective 12/22/2015. Texas SB 1021(2015) - Reduces aggregate threshold to $25 from $50. Effective 9/1/2015.. 48.

(52) 2015 Significant Enacted Legislation Texas HB 1454 (2015) - Requires the holder of shares of a mutual fund, checking or savings accounts, or the contents of a safe deposit box, to request from the owner the name and physical or e-mail address of the owner's representative for the purpose of providing due diligence notification. If an owner has designated a representative for notice, the holder shall mail or e-mail the written notice to the representative in addition to mailing the notice to the owner. Abandonment period stops running if the representative communicates to the holder that the representative knows the owner's location & that the owner exists & has not abandoned the asset. The holder must add to the UP report the name & last known mailing or e-mail address of designated representatives. Holders must keep a record of the name & last known mailing or e-mail address of designated representatives per record retention requirements. Effective 9/1/2017 Texas SB 1589 (2015) - A holder of mineral proceeds must include in the report the following information with respect to each well the production from which resulted mineral interest UP: 1. the lease, property, or well name; 2. any lease, property, or well identification number used to identify the lease, property, or well; and 3. the county in which the lease, property, or well is located. The information reported to the Comptroller is confidential. Effective 1/1/2016. Current Trends and Issues: 2015 Significant Enacted Legislation Washington SB 6057 (2015) • Clarifies that gift cards with no expiration dates or dormancy fees are not reportable. • Beginning 7/1/2016 electronic reporting and payments (EFT or other) required. • Adds specific provisions relating to audits and new interest (10%) and penalty provisions for failure to file reports or to pay or delivery property due. • Permits a holder to file a “petition for review” of any interest assessment. • All provisions except the penalty and interest provisions were effective 7/1/2015, with the p & i provisions effective 7/1/2016 unless the Dept. of Revenue determines it is unable to effectively implement them then they are effective 7/1/2017.. 49.

(53) 2014 UP Regulations Alabama Regulations 10068 2014 (eff. 2/3/2015) - Many 1. How to file extension or exception to electronically filing the report 2. Incomplete or unbalanced reports will be returned w/i 1 yr of receipt 3. Aggregate: Individual items less than fifty dollars ($50) may be aggregated (except recurring payments, i.e., dividend, royalties, annuities), owner detail information should be included with the aggregated report 4. VDA: A holder that has reportable UP from a previous year and has not reported the property may file a VDA. 5. Worthless securities declared should not be remitted as Unclaimed Property. Worthless securities can include stocks or bonds that are either publicly traded or privately held. 6. Marketable securities delivered to the Treasurer's Office will be sold upon receipt at prices prevailing at the time of sale.. Texas New Section 13.21 - The rules were changed by adding new section 13.21 which mandates that holders file reports via Texas’ online secure file transfer portal. This new requirement became effective beginning with the July 1, 2014 Texas report deadline. Files that are uploaded but are encrypted will be rejected.. QUESTIONS???. 50.

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