Session C1. Unclaimed Property: The “Un

SESSION C1
Unclaimed Property: The "Un-Tax"
27th Annual MNCPA
State Taxation of Multistate Business Conference
June 12, 2013
Valerie M. Jundt
Keane Unclaimed Property Services Group
513 E Bismarck Expy Ste 21
Bismarck, ND 58504
701-224-1224
[email protected]
Valerie M. Jundt, national practice leader and managing director for Keane Unclaimed
Property Services Group, has more than 27 years of unclaimed property experience. She helps
clients resolve compliance issues arising from state audits, enforcement actions and law
changes. Jundt is the former executive director for the National Association of Unclaimed
Property Administrators (NAUPA) and is a recipient of its Lifetime Achievement Award. She
has been featured in a variety of national media including Money Magazine, Good
Housekeeping, Dateline NBC, CNN and Fox News.
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Minnesota Society of CPAs
Unclaimed Property:
The “Un-Tax”
Valerie M. Jundt, Managing Director
June 12, 2013
Keane Consulting & Advisory Services
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What is Unclaimed Property?
Definition:
Intangible Personal Property that has gone unclaimed by
the rightful owner (i.e. remained outstanding) after a
specified period of time.
Most states claim contents of safe deposit boxes
All States Have a Law
• No two states have the SAME law
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Rules of Jurisdiction
Where to Report – Priority Rules
Texas v. New Jersey (1965):
The U.S. Supreme Court establishes the seminal dualpriority scheme that controls future unclaimed property
reporting and payment by holders.
– State of owner’s last known address
– Holder’s State of Incorporation, if the last known
address of the owner is unknown
– *Foreign address property
*1981 Uniform Unclaimed Property Act
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Public Policy & Purpose of the
Unclaimed Property Laws
One place to look for funds – held in custodial capacity
Reunite lost owners (consumer protection)
Prevent unjust enrichment to the holder
Benefit all citizens of a particular state:
General fund allocations
Release/Indemnification to companies for filing
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2013
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Overview of the State and Federal Rules
54 jurisdictions have unclaimed property laws
Some states have adopted a version of the Uniform Unclaimed
Property Acts while others have not; laws are constantly changing.
Supreme Court Case Law – priority rules for reporting
Texas v. New Jersey (1965)
Pennsylvania v. New York (1972)
Delaware v. New York (1993)
Uniform Unclaimed Property Acts
1954 Uniform Act
1966 Uniform Act
1981 Uniform Act
1995 Uniform Act
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Traditional Property Types
Deposit Accounts
Savings, Checking/CD’s
Accounts Receivable Credit
Balances
Gift Cards & Rebates
Securities related property
Un-cashed payroll checks
Un-cashed vendor checks
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Mineral Proceeds
Insurance premiums,
policies & claim payments
Unapplied cash payments
Unidentified Remittances
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Unclaimed Property vs. Tax
Derivative rights doctrine
Nexus does not apply
No statute of limitations
Few states provide administrative remedies
Records retention requirements
Use of Contract Auditors
Regulatory agencies and reporting deadlines
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Regulatory Responsibilities
Duty to file a timely report
Duty to perform due diligence timely
Duty to file in state mandated format
Duty to maintain copies of the reports and supporting
documentation
Duty to protect the funds until reported and transferred to
the state
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Why should you care?
It’s the law!
Generally no statute of limitation
Historically an area that has been overlooked
States estimate 70-90% General Ledger out of compliance
Increasing audit activity
Potential for significant penalties
Reputational risk
Sarbanes-Oxley Section 302 & 404
Section 302 requires that CEOs and CFOs include, with any periodic
financial report filed at the SEC, a written statement certifying disclosure
controls and procedures.
Section 404 review includes an assessment of the design and operating
effectiveness of internal controls for significant accounts.
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Other Considerations
Dormancy periods- based on applicable state
Are Negative reports required
Due diligence
Aggregate amounts
Burden of proof
Record retention
Settlement Agreements
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State Regulations
& Reporting Requirements
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Reporting Requirements
Annual reports are due to most states in the Fall
November 1- Report Due Date
Property Cut-off Date as of June 30
Due diligence is required not less than 90, not more than
120 days
• Depending on the property type some states require
mailings be made by certified mail and advertising.
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Additional Reporting Requirements
Annual reports are due to the remaining states in the
primarily in the Spring
Varies between March 1 –May 1
Cut-off as of December 31
Recent Exceptions to the rule (s) - Texas & Michigan
Reports due July 1
Cut-off date as of March 1 and March 30
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Business-to-Business Exemptions
Exemptions differ based upon property type, state
interpretations and other criteria
Few exemptions are retroactive (Ohio the exception)
Informal B2B recognized by some states where relationship is
ongoing (TX , NY)
Some states of incorporation may challenge B2B exemptions
MO and MI proposed exemption not passed
Utah enacted exemption for credits in 2009 effective 2011
Wisconsin – restrictive but does allow exemption for “credit
balance”
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Potential Audit Triggers
Failure to file
Filing negative or zero reports
Filing incomplete reports
Missing property types specific to industry
Filing securities-related property through TPA, but not general
ledger property (or vice versa)
Filing to the incorrect state
Property filed late
Reports and remittances do not reconcile
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Increased Efforts to Find Non / Under Reporters
Unclaimed Property Administrators are increasing their efforts
to identify Holders who are not in FULL compliance with their
state’s unclaimed property provisions.
Increased efforts include:
Cross referencing data between departments. For example: Cross
referencing State Tax Records with Unclaimed Property Reporting.
Trending Reported Property to identify decreases in amounts reported
or missing property types.
Reviewing reported property types to determine if all expected
property types are being included for specific industries.
Evaluating “None Reports” for reasonableness.
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Fines & Penalties
A holder can be assessed penalties and/or interest:
Failure to report/remit the property
Failure to comply with the statute
Interest generally applied at 10%–25% of property value
Civil/Criminal penalties for failure to report/remit/deliver
OR filing a fraudulent report may include
• $100 – $200 per day ($10,000 maximum)
• Varies from $1000 – $25,000 fine plus some states
access an additional 25% of the value of the property
• Some States – Class B misdemeanor
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Trends & Enforcement Update
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Unique to Minnesota
Aggregate Amounts: $100
Abandonment Periods
Payroll: 1 year
Bank accounts, certificates of deposit: 3 years
Safe deposit box contents: 5 years
Money orders: 3 years
Traveler's checks: 15 years
All other property types: 3 years
Rebates & Gift Items
Cooperatives
Website: http://mn.gov/commerce/topics/Unclaimed-Property/
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Minnesota
§ 345.55
Interest and penalties.
1. Misdemeanor. Any person who willfully fails to render any report or
perform other duties required under this act, shall be guilty of a misdemeanor.
2. Gross misdemeanor. Any person who willfully refuses to pay or deliver
abandoned property to the commissioner as required under this act shall be
guilty of a gross misdemeanor.
3. Interest assessment after demand. In addition to any damages, penalties, or
fines for which a person may be liable under other provisions of law, any
person who fails to pay or deliver unclaimed property within the time
prescribed by this act after written demand therefor by the commissioner
made after March 29, 1978, shall pay to the commissioner interest at the rate
of 12% per year on the property or value thereof from the date of the written
demand.
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Noteworthy Legal Cases or Issues
McKesson
GRIR
Select Medical
B2B….accessible records
Insurance Industry Focus
Minnesota & New York outreach
Task force hearings
GRA agreements
Fast moving legislation
• North Dakota
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Current Trends & Regulatory Environment
Struggling economy = UP enforcement goes up
Not a tax but states are treating it like one
Minnesota – Introduced legislation seeking to update its unclaimed property law
to a version of the 1995 Uniform Act
• ULC considering updating the 1995 Uniform Unclaimed Property Act
Texas and Michigan – Filing Deadline change to July 1
Delaware – 3rd largest source of revenue – included projections in their annual
budgets
New Jersey – Gift Card Legislation and Litigation
New York – Subpoenas issued to Life Insurance Companies
Florida – Initiated multi-state audit focus on Insurance Industry
Various States – Introduced and passed unclaimed life insurance benefits laws
California – issued invoices for past-due property filed and reported over FIVE years ago
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Delaware Voluntary Compliance Program
Recently enacted legislation established a Voluntary Compliance
Program with the Department of State for holders who are not
currently subject to DE audit.
Key Provisions:
Holders that indicate in writing their intent to enter into an
unclaimed property voluntary disclosure agreement by June 30,
2013, and make payment in full or enter into a payment plan on
or before June 30, 2014 will be subject to a “look-back” period
of 1996.
Holders their intent to enter into an unclaimed property
voluntary disclosure agreement by June 30, 2014, and make
payment in full or enter into a payment plan on or before June
30, 2015 will be subject to a “look-back” period of 1993.
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Delaware Voluntary Compliance Program continued…
After the Secretary of State enters a voluntary disclosure agreement with
a holder, the State will not seek further payment of abandoned property
covered by that agreement unless it can establish evidence of fraud or
willful misconduct in the voluntary disclosure.
The State Escheator shall not initiate an examination of any holder
participating in the voluntary disclosure program administered by the
Secretary of State unless the Secretary of State refers that holder to the
State Escheator for examination.
This provision is effective immediately. This legislation will cease to be
effective on July 1, 2015.
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Federal Law
FRB Credit Card Act of 2009
Effective August 22, 2010 no fees on branded and
retailer GC’s unless:
consumer has not used for one year
clear disclosure of the fees on the card
only one fee is charged per month (but no $ limit is
specified)
Cards cannot expire before 5 years
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Federal Law- US Code
15 USC § 1666d - Treatment of credit balances
Whenever a credit balance in excess of $1 is created in connection with a consumer
credit transaction through:
Transmittal of funds to a creditor in excess of the total balance due on an account;
Rebates of unearned finance charges or insurance premiums or
Amounts otherwise owed to or held for the benefit of the obligor, the creditor
shall
Credit the amount of the credit balance to the consumer’s account;
Refund any part of the amount of the remaining credit balance upon request
of the consumer; and
Make a good faith effort to refund to the consumer by cash check or money
order any part of the amount of the credit remaining in the account for more
than 6 months, except that no further action is required in any case in which
the consumer’s current location is not known by the creditor and cannot be
traced through the consumer’s last known address or telephone number.
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FOCUS ON CREDIT DEPARTMENT
& BEST PRACTICES
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Accounts Receivable Review
Reconcile AR records
Offset Accounts Where Appropriate/Available
• National accounts (parent/subsidiary)
• Same customer with multiple account numbers
Reconcile AR to other accounts
Accounts payable
Bad debt written-off
Communication Campaign
Negotiate settlements of outstanding credits
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Accounts Receivable Best Practices
Establish written Policies and Procedures to ensure that unclaimed credit
balances are addressed on a regular basis.
Ensure that Account Receivable duties are segregated to discourage
fraudulent activity; i.e. no one person should have control over deposits
plus the ability to post to ledgers.
Update Last Activity Dates to accurately reflect current activity.
Follow-up on credit balances as they are created. Contact customers to
inquire how they want the credit handled; offset against next billing cycle
or refunded via a check.
Include credit balances on all invoices.
Establish a procedure that automatically generates correspondence with
customers with outstanding credit balances.
Include outstanding credit balances in standard due diligence procedures.
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Unclaimed Property Audits & Accounts Receivable
What do Auditors look for?
Activity reflected on Aging Reports:
What are the oldest dates recorded on the aging report?
Are there any gaps in the reporting?
Is activity consistent between divisions / subsidiaries?
Is the resolution of credit balances recorded on the report?
For how many years was the current system used?
Is the prior system still assessable?
How was activity carried over from the old system to the new?
Were old balances written-off against bad debt or reversed to income?
How are credit balances currently handled? How were credit balances
handled 5 years ago?
How many years of AR records are available?
Were credit balances included with past unclaimed property reports?
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Support Examples
Check eventually cleared
Bank statement or internal print screens?
Wrong payee or amount
Must provide link between both checks
Must provide proof that 2nd payment cleared
Voided and or reissued
Confirm and note purpose for the void
Duplicate payment
Via Check or EFT
Must provide proof that 2nd payment cleared
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Support Examples (cont’d)
Utility/Tax bills
Can show statements within relevant time period showing the balance
being cleared or paid
Charitable Contributions – Varies State to State
Must be able to prove no value received
contribution vs. participation in golf outing)
(i.e. pure
Payments to state or local agencies – Varies State to State
Statement of balances; base period better, current ok
Liability was never due
Goods not received / Services not provided
Internal releases of liability are generally not accepted
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Conducting a Communication Campaign
Specific reference to item in question (amount/date
of issue/payee name)
Responses must be in writing
Allow enough time for receipt & slow responses
Provide multiple opportunities for responding (fax,
email)
Emails are OK if the email address clearly identifies
the owner
[email protected] would probably not be accepted
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Communication Campaign
Return to rightful owner
While this liability will not be reportable to any state, it will
remain in audit extrapolation (projection)
“Don’t Know” responses
If the response is that the person isn’t sure if the funds are
due or not, State will consider them reportable & include
in extrapolation
Try to encourage the respondent to make a decision
Negotiate a balance agreement adjustment if appropriate
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Remediation Facts
Burden of Proof
The holder must overcome the presumption of abandonment
(opposite of criminal law burden of proof)
Documentation is critical to satisfying this burden
Documentation Supporting Remediation Within an Audit
Proof that funds were returned to rightful owner
Historical state filings
Record retention policies
Impact of Remediation is Material
With extrapolation and interest a $100 transaction could result
in $1,000 of liability
Value of remediation efforts can be worth costs of additional
resources
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Benchmarks for Remediation
Identify appropriate, consistent financial data
Ensure that data is limited to actual activity attributable to inscope business units rather than the entire organization
Rebate program dates
Acquisition dates and details
Involve the right people
Within your company
At customers/vendors
• Ensure contact with appropriate representatives to
resolve outstanding items
• Escalate to decision makers
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Performing a Self Review
Analyze corporate structure
Understand and document the current and historical policies
and procedures
Document and review historical unclaimed property reporting
history
Identify potential types of unclaimed property your company
may generate
Quantify the potential liability for each property type
Research items to verify that they are unclaimed and pay
owner where possible
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Gathering Relevant Data
Corporate Structure
Merger & Acquisition History
General Ledger / Chart of Accounts
Bank Reconciliations / Outstanding Check Lists
Journal Entries
Accounts Receivable Aging Reports
De-minims / Automatic system write-offs
Contracts w/applicable service providers
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Quantifying the Potential Liability
Identify periods where detailed records are available
Review records and schedule items that are potential
unclaimed property.
For example:
Stale dated outstanding checks
Voided checks that were not reissued
Stale dated credit balances
Research items to determine if they represent a fixed and
certain obligation
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Amnesty vs. Voluntary Compliance Programs
Amnesty:
Broadly applied
Can be initiated by the agency or legislature
Not eligible if already selected for an audit
Voluntary Compliance Initiatives:
Formal
Informal
Not eligible if already selected for an audit
Right to examine generally preserved
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Benefits of Voluntary Compliance
Accurate financials (SOX)
Improved chance of penalty and interest abatement
Limited “look-back” period
Reduced assessments
Risk of Audit
Avoid laborious auditor requests
Set own timetable for compliance
Avoid whistleblowers
Avoid litigation
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Audit Triggers
State registration and payment of other taxes with no
unclaimed property compliance history
Filing only negative unclaimed property reports
Failing to file all property types
Claiming property without being compliant
Merger & acquisition history
Transient workforce
State of incorporation
Media event / publicity
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Unclaimed Property Audits
State Audits vs. Contract audits
Authority to estimate – when and how?
How and when are interest and penalties applied?
What options/recourse is available for a holder?
NOTEWORTHY: Many, if not all, states may have the right to
conduct an audit. Most states also outsource enforcement to
and through a third party.
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Additional Helpful Unclaimed Property Websites/Resources
Unclaimed Property Professional’s Organization
www.uppo.org
NAUPA
www.unclaimed.org
KEANE
www.KeaneUP.com
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Questions?
Valerie M. Jundt
Managing Director
701.224.1224
[email protected]
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