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Unclaimed Property Compliance:
Are you Ready for the Upcoming Reporting Deadline?
P.O. Box 509 • Eau Claire, WI 54702-0509 • Phone: 866-352-9539 • Fax: 715-833-3953Email: [email protected] • Web: www.lorman.com • Seminar ID: 385365
This manual was created for online viewing. State specific information in this manual is used for illustration and is an example only.
Presented by:Kathleen Moyer, Deloitte & Touche USA LLPPamela J. Wentz, Deloitte & Touche USA LLP
Prepared by:Kathleen Moyer, Deloitte & Touche USA LLPPamela J. Wentz, Deloitte & Touche USA LLP
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Lorman Education Services, P.O. Box 509, Eau Claire, WI 54702-0509 • Phone: 866-352-9539 • Fax: 715-833-3953Email address: [email protected] • Website: www.lorman.com • Seminar ID: 385365
Unclaimed Property Compliance:
Are you Ready for the Upcoming Reporting Deadline?
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Unclaimed Property Compliance –Are you Ready for the Upcoming Reporting Deadline?
Lorman Education Webcast
Kathy Moyer, Senior Manager Pam Wentz, Senior Manager
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Introduction
This presentation contains general information only and Thomson Reuters is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. 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.
Thomson Reuters, its affiliates and related entities shall not be responsible for any loss sustained by any person who relies on this presentation.
Agenda• History and Background of the Law• State and Federal Rules • How Unclaimed Property Differs from a Tax• Holder Responsibilities Under the Unclaimed Property Laws • Examples of Reportable Property• Where to Report • How to Report• Identify Items due for November 1 Filing• Recent Updates • State Enforcement Efforts • Fines, Penalties, and Interest • Unclaimed Property and Sarbanes-Oxley • Examples of Some Best Industry Practices • Need for Sufficient Internal Controls • Unclaimed Property Websites and Resources • Q & A and Contacts
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History and Background of the Law
• Origins in British Common Law
• Escheat
– Traditional
– Custodial
State and Federal Rules• 54 jurisdictions have unclaimed property laws
– Some states have adopted versions 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 (1933)
• Uniform Unclaimed Property Acts– 1954 Uniform Act– 1966 Uniform Act– 1981 Uniform Act– 1995 Uniform Act
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How Unclaimed Property Differs from a Tax
• Derivative rights doctrine
• Nexus does not apply
• The majority of states do not provide relief for reach-back based on a statute of limitations.– Where statute of limitations provisions exist, the limitations period is typically
longer than that applicable in taxation (example – Delaware reaches back to 1981 upon audit).
– Failure to report or the filing of a fraudulent report generally eliminates reach-back relief afforded by limitation provisions.
• Few states provide for a traditional administrative appeals process/remedy, so litigation is sometimes the only recourse available to holders who dispute a state assessment.
• Records retention requirements
• Use of contract auditors
Holder Responsibilities Under the Unclaimed Property Laws
• Duty to file a report timely
• Duty to perform due diligence timely
• Duty to remit the property timely
• 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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Examples of Reportable Property• Uncashed checks (i.e. vendor checks, etc.)
• Payroll, commissions
• Accounts receivable credit balances, refunds, and customer deposits
• Rebates, Gift Card items
• Insurance proceeds
• Utility deposits
• Securities-related property
• Money orders, travelers checks
• Mineral-related proceeds (royalties, suspense, etc…)
Where to Report1. State of owner’s last known address
2. State of holder’s incorporation or domicile if address not known
3. State of holder’s incorporation or domicile if address of apparent owner is in a foreign country and if holder is incorporated or domiciled in the U.S.*
* Provision language added in the 1981 Uniform Act
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How to Report• Check state websites for reporting instructions
– Dormancy periods may vary by property type– When are the reports due?– Is due diligence required? If so, what are the guidelines? – Does the state have an aggregate amount and if so, are we
prepared to report appropriately?– Are negative reports required?– Does the state require electronic filing?– Does the state accept NAUPA filing formats?– Is electronic payment required?– Where are the reports sent?– Who must sign the report?www.unclaimed.org provides a link to the state websites
Identify Items Due for November 1 Reporting
Report Due Dormancy Period
Transactions Occurring Prior to this Date Should Appear on the Report
11-1-2009 5 6-30-2004
11-1-2009 3 6-30-2006
11-1-2009 1 6-30-2008
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Recent Updates
• Litigation –– American Express case (Kentucky)
– Biogen and Stride Rite cases (Massachusetts business to business exemption)
– Young America case (Iowa)
– Computer Associates case (Delaware)
• Specific State Updates –– Pennsylvania – dormancy period
– Florida – audit procedures
• Specific Federal Update –– Federal Gift Card Legislation
• Proposed State Updates –– Delaware – potential appeals process proposed, but not yet enacted
State Enforcement Efforts• State Letters to Non-Filers (attempt to encourage filing or
voluntary disclosure)
• State Desk Audits
• Third Party Audits– Multi-state– State of incorporation– Long process and potentially significant assessments– Potential imposition of penalties and interest
• Examples – California, New York and Delaware
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Fines, Penalties, and Interest• A holder can be assessed penalties and/or interest for:
– 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 $1,000-$25,000 fine plus some states access an
additional 25% of the value of the property– Some States - Class B misdemeanor
Unclaimed Property and Sarbanes-Oxley• Failure to properly account for an unclaimed property
liability could be in violation of Generally Accepted Accounting Principles (GAAP).
• Sarbanes-Oxley Act– Section 302 requires that CEOs and CFOs include, with any
periodic financial report filed at the SEC, a written statement certifying the accuracy of report.
– Internal control is a significant focus of Sarbanes-Oxley due to recent financial and accounting scandals.
– Section 404 review includes identification and testing of the internal controls that have been implemented.
– Compliance by SEC registrants is non-negotiable.
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Examples of Best Industry Practices• Determine potential unclaimed property exposure.
• Perform early outreach to payees as a first round of due diligence prior to the statutory due diligence period.
• Get into compliance with applicable state requirements.
• Develop and maintain detailed processes and procedures for tracking and reporting unclaimed property.
• Conduct internal audits of unclaimed property processes and procedures.
• Form an unclaimed property committee that is responsible for compliance.– Include key personnel, including, but not limited to, internal audit, legal
counsel, upper management, treasurer, comptroller and tax director.
Need for Sufficient Internal Controls• Until the property is transferred, assess that
adequate internal controls are in place!
• Consider establishing an unclaimed property liability account on the company’s G/L if one is not already in place.
• Set up specific procedures for claims processing.
• Set up specific procedures for due diligence and reporting timeframes and responsibilities or consider outsourcing.
• Finders and fees
• Whistle Blower laws!
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Unclaimed Property Websites and Resources• www.uppo.org
• www.unclaimed.org
• www.missingmoney.com
• Bureau of National Affairs Corporate Law Portfolio Unclaimed Property Portfolio 74-2nd www.bna.com
Q & A
Thank you!
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Kathy MoyerSenior Manager, Thomson Reuters
Pam WentzSenior Manager, Thomson Reuters
Contacts
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Notes
