Wednesday, November 21, 2018

IRS Extends Compliance Deadline for Withholding & Reporting Requirements on IRA Accounts Remitted to States as Unclaimed Property

Earlier this year, in Revenue Ruling 2018-17 the IRS issued guidance stating that holders of traditional IRAs required to report IRA assets to a state as unclaimed property were required to withhold federal income tax upon such amounts and issue a 1099-R form indicating the owner as the recipient of the funds.  The IRS originally set the compliance date for this guidance as January 1, 2019.

This ruling was not without controversy.  For example, it seems incongruous to impose taxes upon the owner of an IRA on account of that owner taking a “distribution” from the IRA when, in fact, the reason that the proceeds are being transferred as unclaimed property is because there has been no contact with, or activity by, the IRA owner for several years.  In addition, the Revenue Ruling raised practical problems for the securities broker-dealer and/or trustees.  For example, when a securities account such as an IRA is escheated to the state, the state generally takes custody of those securities.  In order to withhold taxes from an IRA containing only securities before escheat, however, would the holder be required to liquidate those securities?  If so, is that consistent with the federal securities laws and/or the holders other duties to the owner?  In light of these questions, the “Holders Coalition” (a group of unclaimed property trade associations and similar entities) issued a comment letter seeking additional guidance.

While the IRS has not directly responded to the questions raised regarding the Revenue Ruling, it did issue a notice this week extending the compliance date until January 1, 2020.  This will hopefully give states and the holder community time to work with the IRS to clarify holders’ obligations with regard to the reporting and remittance of IRA accounts.

Wednesday, November 14, 2018

Ohio Legislative Update (With Some Interesting Stats)

Recently, Ohio passed House Bill 353, which broadens the scope of the current exemptions for gift cards and gift certificates under the unclaimed property act.  Effective January 22, 2019 the bill will exempt certain "open-loop" prepaid cards, "closed-loop" prepaid cards, and rewards cards.  The revised legislation also exempts any "obligation" due to a retail customer (as opposed to just "credits").

As is often the case, a non-partisan legislative committee prepared a "Fiscal Note" regarding the potential economic impact of the new law.  That report, in turn, sets forth the amount of money reported to, and repaid by, the State of Ohio during the most recent five-year period.  For example, according to the Note, holders reported and remitted nearly $300 million to the state during Fiscal Year 2018.  During that same period, the state returned $97 million to owners.  Over the five year period 2014-2018, the state collected $1.4 billion (with a "b") from holders while returning approximately $425 million to owners.

Monday, November 12, 2018

Election Day Roundup -- Meet Your New (and Returning) Escheators

You may not have noticed, given that there was almost no news coverage of it, but this past Tuesday was Election Day in the United States.  While the consequences of that election on national policies are being hotly debated, there were several elections that may impact the future course of unclaimed property policies.  Most state unclaimed property offices are run by an elected State Treasurer (or State Comptroller).  There were several such elections this week.  Among the new (in bold) or returning unclaimed property elected officials are:

Alabama -- John McMillan
Arkansas -- Andrea Lea (Auditor of State)
California -- Betty Yee (State Comptroller)
Colorado -- Dave Young
Connecticut -- Shawn Wooden
Florida -- Jimmy Patronis
Idaho -- Judy Ellsworth
Illinois -- Michael Frerichs
Iowa -- Michael Fitzgerald
Kansas -- Jake LaTurner
Massachusetts -- Deb Goldberg
Nebraska -- John Murante
Nevada -- Zach Conine
New York -- Thomas DiNapoli (State Comptroller)
Oklahoma -- Randy McDaniel
Rhode Island -- Seth Magaziner
South Carolina -- Curtis Loftis
South Dakota -- Josh Haeder
Texas -- Glenn Hegar
Vermont -- Elizabeth Pearce
Wyoming -- Curt Meier

Congratulations to these new officials.