Monday, March 2, 2020

An Offer You Might Not Want to Refuse

Delaware Secretary of State Issues VDA “Invitation” Notices

 

The Delaware Secretary of State’s Office recently sent letters to over 100 companies identified as “likely” out of compliance with Delaware’s unclaimed property laws. The letters “invite” those companies to enroll in Delaware’s Voluntary Disclosure Agreement (VDA) program. Delaware’s VDA is an amnesty-type program pursuant to which a company performs a thorough self-review of its unclaimed property reporting history and remits any overdue unclaimed property to the state. That self-review is, in turn, double-checked by state staffers on behalf of the Secretary of State’s office who may identify additional property, if any, to be reported and remitted. In exchange for performing this self-review, the VDA program provides companies with a waiver of all penalties and interest that the state might otherwise assess on late-reported unclaimed property. In addition, the company and the state will generally agree in advance on a methodology for certain contested issues that come up during the review: How far back does the review go? What entities have to be reviewed? What is the process for dealing with periods for which the company does not have researchable records?

The waiver of penalties and interest is the VDA’s “carrot;” now for the “stick”: companies who do not accept the invitation to enroll in the VDA program may be selected for audit by the State. That audit is not a self-review, but rather is generally conducted by a private auditing firm retained by the state. Those audits tend to be much (much, much) lengthier than a VDA self-review and carry the threat of interest and penalties. In addition, the auditors generally employ more aggressive and controversial audit methodologies, seeking to shift the burden upon the company to prove that items are not unclaimed property, rather than the auditors demonstrating that items are unclaimed property. Indeed, there have been several lawsuits filed in just the past few years challenging the practices used by Delaware’s selected auditing firms. See Univar v. Geisenberger, Case No. 18-cv-01909 (U.S. District Court, D. Del.); AT&T Capital Services v. Geisenberger, Case No. 19-cv-2238 (U.S. District Court, D. Del.); Eaton Corp. v. Geisenberger, Case No. 19-cv-2269 (U.S. District Court, D. Del).

Given the potential audit risk, companies that are incorporated in Delaware should be on the lookout for these notices.  Unfortunately, the letters often do not go to the individual responsible for reporting and remitting unclaimed property at the organization, but rather are generally addressed to a senior executive such as the Chief Financial Officer.  Time to accept the invitation is limited; companies receiving the notice have 60 days from the date the request was made to enroll in the VDA program.  After that, an audit notice may issue.

Monday, February 3, 2020

Maine Amends Unclaimed Property Act to Exempt Gift Obligations Beginning in 2022

Amounts deemed abandoned to reduce from 60% to zero over four year period.

On January 30, the Governor of Maine signed Public Law 553, “An Act Regarding the Presumption of Abandonment of Gift Obligations.” Over a four year period, the new law will reduce — from sixty percent to zero — the dollar percentage of “gift obligations” that a holder must report and remit to Maine as unclaimed property.

Pursuant to the Maine Unclaimed Property Act, “gift obligations” (which include most gift certificates and gift cards that are not redeemable in cash) are deemed unclaimed property two years after December 31st of the year in which the obligation is sold or the most recent transaction occurs. Currently, holders of such items are required to report and remit 60% of the outstanding balance of these items as unclaimed property, keeping the remainder as income. Pursuant to the new law, the percentage to be reported will remain 60% for those items with last activity in 2019, but will drop to 40% for those obligations with a last activity in 2020, to 20% for those obligations with a last activity in 2021, and finally to zero for those items sold or last active in 2022 or later.

Friday, January 10, 2020

2020 Vision: A Look at the Year Ahead in Unclaimed Property


Happy New Year! Last year saw a variety of developments in the world of unclaimed property. Today, we take a look ahead at five topics that might be at the forefront of unclaimed property news in 2020.

Audit Disputes & Litigation — 2019 saw a number of challenges to the State of Delaware’s audit practices; most notably, the battle between Univar, Inc. and Delaware in parallel federal and state litigations arising out of a proposed unclaimed property audit. While there were a number of procedural and narrowing decisions in that case, the real substance remains to be litigated. That battle will continue, and it appears that new ones will get underway shortly. In December, AT&T filed a lawsuit against Delaware, challenging the state’s audit practices as a violation of the company’s constitutional rights. Similar challenges were recently filed by Fruit of the Loom and Eton Corporation, both of which are challenging the state’s estimation and extrapolation practices. Substantive decisions in any of these cases will be significant for those undergoing Delaware unclaimed property audits.

Savings Bond Tug of War — Back in October, we summarized the decision of the U.S. Court of Appeals for the Federal Circuit in Laturner v. United States, in which the Court held that the federal government had no obligation to turn over the proceeds of matured, but unredeemed U.S. Savings Bonds to the states as unclaimed property. In particular, the Court ruled that state unclaimed property laws were preempted by federal laws allowing bondholders to keep the bonds after maturity, and that states (like owners) could not redeem savings bonds without presenting either the bond itself, or identifying information relating to the bond. In response, Congressman Ron Estes (who, as a former State Treasurer, knows a thing or two about unclaimed property) has proposed the “Unclaimed Savings Bond Act of 2019” which would amend federal law to allow states to take custody of unredeemed savings bonds and substantially undo the Federal Circuit’s decision in LaTurner. Unsurprisingly, the legislation is strongly supported by the National Association of State Treasurers.

More Adoptions of the 2016 Uniform Act — In 2019, Colorado and Maine joined the ranks of states adopting a variant of the 2016 Uniform Unclaimed Property Act. A number of states have similar legislation in the works which may become law during the upcoming year.

IRA Activity — Securities industry holders will also need to take a look at their programming and practices relating to assets held in Individual Retirement Accounts. In most states, the triggering event for IRA escheatment is “the date . . . specified in the income tax laws of the United States by which distribution of the property must begin in order to avoid a tax penalty.” Previously this was age 70.5, but Public Law 116-94, which was signed into law on December 20, 2019, changes the so-called “Mandatory Distribution Date” (MDD) to age 72. The new rule applies to distributions required to be made after December 31, 2019. Holders will have to update their procedures accordingly.

Oh Canada? — 2020 may also see increased unclaimed property activity outside of the United States. The Canadian provinces of Alberta, Quebec, and British Columbia all have unclaimed property regulations of varying sorts that have been in place for some time. In 2019, New Brunswick proposed legislation that might make it the fourth. The New Brunswick Unclaimed Property Act is currently pending before the province’s Standing Committee on Economic Policy. Similarly, the Manitoba Law Reform Commission has issued a report containing recommendations for an unclaimed property regulatory structure similar to those in other provinces. We will see if any of this proposed legislation develops. Of course, the main event in potential Canadian escheat laws is whether or when Ontario will enact such a law. Perhaps this is the year.

Wednesday, July 3, 2019

It’s the Big White Building With the Ionic Columns and the Statue of Alexander Hamilton . . .

An Exercise in Finding the Owners of Unclaimed Property

One of the theoretical policy justifications for state unclaimed property laws is that the states will be conscientious about finding missing owners and reuniting them with their property. Indeed, according to the National Association of Unclaimed Property Administrators (an affiliate of the National Association of State Treasurers) the “purpose of unclaimed property laws is to protect consumers by ensuring money owed to them is returned to them, rather than remaining permanently with financial institutions, business associations, governments, and other entities.”
 
Given that premise, the identities of “lost” owners with property being held by the state never cease to amaze. Property is not just held for those truly “lost,” or famously reclusive authors, or politicians too busy to open mail, or those off in a galaxy far, far away. Some owners of unclaimed property are . . . ahem, presumably easier to find. As we pause the week to celebrate the 243rd birthday of the United States of America, note that California, New York, Illinois, Texas, Washington, D.C., and no doubt others are all holding “abandoned” or “unclaimed” property for the United States of America, United States Government and/or United States Treasury (and probably hundreds of other federal agencies).

While Washington D.C. might get a pass here because of the whole “Taxation Without Representation” thing, for the other jurisdictions searching in vain for the United States Treasury: try the big white building in Washington, D.C. with the ionic columns and the statues of Alexander Hamilton and Albert Gallatin . . . or, you know, the back of the $10 bill 

Happy Fourth Everyone!

Monday, June 17, 2019

Nevada Passes 2016 Uniform Act Amendments

On June 7, 2019, Nevada Governor Steve Sisolak approved Senate Bill 44 which incorporates certain provisions of the 2016 Uniform Unclaimed Property Act into the Nevada Unclaimed Property Act. In particular, the new legislation adds provisions relating specifically to payroll cards and virtual currency and exempts game-related digital content and loyalty cards. It also changes the dormancy standards for life insurance policies and IRA accounts to more closely mirror the provisions of the Uniform Act and allows for the use of electronic communications.

With regard to owner claims, the new law expressly permits the state to deduct from such claims and amounts owed by the owner for outstanding child support, civil or criminal penalties, or state and local taxes. In an effort to combat fraudulent claims made for unclaimed property, the new legislation also imposes criminal penalties for the filing of false claims.

The new law goes into effect on July 1.