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1/8/21 1:07 PM

States Surveyed About International Mail and Covid-19 Pandemic Unclaimed Property Impacts

After the Shareholder Services Association (SSA) and Securities Transfer Association (STA) voiced their concerns via a joint letter to the National Association of Unclaimed Property Administrators (NAUPA) regarding the interruption of international mail delivery due to the COVID-19 pandemic, NAUPA sent a survey to its member states in May 2020.  

The apprehensions raised were surrounding the suspension of mail service, which would prevent the successful completion of due diligence and ultimately the reporting property without a last attempt at reunification with the property owner.  It is notable that states may liquidate securities property, making it difficult for the shareholder to retrieve it in its native form.   In connection with ongoing concerns expressed by UPPO and the holder community, NAUPA recently released the responses from 19 states to the following questions:

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Topics: Compliance, Due Diligence, Best Practices

12/17/20 9:22 AM

It's a Matter of When, Not If, the States Take Custody of Unclaimed Cryptocurrency.

As the use of blockchain technologies and cryptocurrencies continues to grow, and in the midst of regulators like the SEC and the IRS continued grappling with oversight and enforcement issues, the states are readying themselves to be able to take custody of unclaimed cryptocurrency in its native form. This new functionality, together with the growing popularity of cryptocurrency, merit further consideration, particularly noting the cryptocurrency market is projected to reach $1.5 billion by the end of 2025.

Virtual currency was first addressed in the 2016 Revised Uniform Unclaimed Property Act (“RUUPA”), a model act promulgated by the Uniform Law Commission as a standard for states to follow when updating their laws. RUUPA defines virtual currency as a “digital representation of value used as a medium of exchange, unit of account, or store of value, which does not have legal tender status recognized by the United States.” Game-related digital content is excluded from this definition.

Several states that have enacted RUUPA-like laws, including Colorado, Illinois, Kentucky, Tennessee, Utah and Vermont, similarly define or adopt the RUUPA definition of virtual currency as a property type that is eligible for escheat. However, neither RUUPA nor any of these states address virtual currency apart from providing a definition. Maine’s law only defines game-related digital content and excludes it from the definition of “property” and thus from escheatment. Even if the state does not specifically provide for virtual currency in its law, each state has a “catchall” provision that includes other miscellaneous intangible property, and the state could argue that this provision encompasses virtual currency.

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Topics: Reporting, Recordkeeping, Best Practices

12/9/20 8:37 AM

Sports Betting, Daily Fantasy Sports and Unclaimed Property

In today’s digital world, you no longer need to be physically present in a casino, at the poker table, or at the racetrack to place a bet.  In many states, you can now place those bets online or even play daily fantasy sports directly from your mobile device.  

In May 2018, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act, a federal law that had previously prohibited sports betting. Since then, half of the states have legalized or are in the process of legalizing sports betting.  According to the American Gaming Organization, sports betting revenue in 3Q 2020 totaled $352.3 million[1] .

Online gambling includes online casinos, online poker sites, daily fantasy sports (DFS), and sports betting.  Sports betting, in turn, includes online and mobile “sportsbooks.”  To place an online sports bet, you need an online account.  Most states that permit online sports betting allow you to do this on your mobile device, but in certain states, like Nevada, you need to create your account while physically at the casino (and often to make a deposit or withdrawal as well).

As of November 10, 2020, retail and/or online sports betting is permitted in: AR, CO, DC, DE, IA, IL, IN, MI, MS, NV, NH, NM, NJ, NY, MT, OR, PA, RI, and WV.  Sports betting is legal, but not operational in the following states: LA, MD, NC, SD, VA, and WA.  Pending legislation exists in OR and MA.  Sports betting is prohibited in the following states: ID, ND, OK, SC, TX, UT, and WI[2].

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Topics: Compliance, Reporting, Best Practices

12/1/20 7:52 AM

Unclaimed Property Invitations, Audit Notices, and Self-Audit Letters

States often send official communications to companies regarding unclaimed property. While some of these mailings are mere filing reminders, other types of communications, such as VDA invitations, audit letters, and self-audit letters, urge holders to take affirmative steps to comply or demonstrate compliance with the unclaimed property laws. We will discuss some, but not all of these types of communications, to assist companies in understanding what each one means, and what holders should consider upon receipt of such a communication.  

Delaware – VDA Invitations and Audit Notices:

We recently posted that the Delaware Department of Finance is expected to send new unclaimed property audit notices in the near future to businesses who did not enroll in the state’s Voluntary Disclosure program (VDA program) in response to the Secretary of State’s invitation to participate in the program dated August, 21, 2020. Under Delaware law, businesses who do not enroll within the 60-day notice period in the letter will be referred to the Department of Finance for an unclaimed property audit.

Indiana, Pennsylvania, Utah and Washington: The Self-Audit Letter

Indiana, Pennsylvania, Utah and Washington have recently started mailing holders letters on official state letterhead that advise holders of their obligation to comply with the unclaimed property laws. Further, the letter proclaims that based on the state’s records, the holder “has never” or “only rarely” reported unclaimed property to the state.

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Topics: Compliance, Audit, Best Practices, Voluntary Disclosure Agreements

11/19/20 8:10 AM

Unclaimed Property Update: IRA Landscape Could Be Changing Again

H.R. 8696, known as “The Securing a Strong Retirement Act of 2020” or “the SECURE Act 2.0”, introduced in the House of Representatives on October 27, 2020, is a bipartisan bill aimed at further protecting and enhancing retirement savings. There are two key aspects of this bill that if enacted, would change the way individual retirement accounts (IRAs) are treated:

1. The age for required minimum distributions (RMDs) from employer-sponsored defined contribution plans and traditional IRAs would increase to age 75.  This provision would be effective for individuals who would turn age 72 after December 31, 2020.

The impact on IRAs would be similar to the impact under the SECURE ACT of 2019 (SECURE ACT) adding another level of analysis required to calculate the RMD date and the trigger date for escheatment. Under the SECURE ACT, we now consider whether the owner turned 70.5 after 12/31/2019. Under the SECURE Act 2.0, we would also have to consider whether an owner has turned 72 after 12/31/2020.

Additionally, certain states that have recently revised their unclaimed property statutes specifically reference “age 70.5” as a possible trigger date for escheatment of IRA accounts (except for Vermont which references “age 72”), which is not in line with the SECURE ACT.   The SECURE ACT 2.0 further underscores the present need for all states to ensure their retirement account provisions align with federal law. 

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Topics: Reporting, Best Practices

11/16/20 7:27 AM

Holder Alert: Delaware Expected to Mail Unclaimed Property Audit Notices in the Near Future

MarketSphere Unclaimed Property Specialists has learned that the state of Delaware will soon be mailing unclaimed property audit notices to those companies who did not respond to the latest round of invitations sent by the state on August 21, 2020 to enroll in the Secretary of State’s Unclaimed Property Voluntary Disclosure Program (VDA program). Approximately 200 holders received these letters, which notify the holder that it is “likely out of compliance” with Delaware’s unclaimed property law and inviting them to participate in the VDA program. Any company can receive a VDA invitation, including public or private corporations, large Fortune 500 companies and smaller companies.

In accordance with Delaware law, the state cannot initiate a new unclaimed property examination (audit) without first notifying the company that it may enter into the Secretary of State’s VDA program (12 Del. C. Ch. 11, section §1172).   These letters put the company on notice that if the holder does not enroll in the VDA program, the Secretary of State’s Office will refer the company to the Delaware Department of Finance, who will issue an unclaimed property audit notice upon the expiration of the 60-day notice period.

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Topics: Delaware, Audit, Best Practices, Voluntary Disclosure Agreements

11/4/20 8:50 AM

Unclaimed Property Record Retention: What, Why & How

Record retention refers to how long important information must remain accessible for future use or reference. Most financial and accounting processes have standards that need to be met because agencies such as the Internal Revenue Service, the Federal Deposit and Insurance Corporation, and the Public Company Accounting Oversight Board all have requirements. You may be familiar with the obligations for these well-known agencies. Do you know what is required for unclaimed property compliance? 

Companies generally maintain a schedule or policy for their escheat records that help define what will need to be kept and for how long. This is a worthwhile practice to meet requirements and have supporting documents available if requested or needed in the event of an audit. 

Creating and maintaining a schedule for unclaimed property record retention isn’t always easy. Unclaimed property retention requirements vary by state and jurisdiction and cause holders confusion about what information must be maintained and how ling they need to archive records. Some holders might decide not to retain unclaimed property records and take their chances during an unclaimed property audit. We don’t want you to fall into this danger zone and have some practical advice that can simplify your escheat record retention policy.

A Few Facts:

◾ Most States’ unclaimed property laws require record retention periods longer than standard tax statutes.

◾ The 1981, 1995 & 2016 Uniform Acts require a record retention period of 10 years plus the dormancy period of the type of property (typically 3 or 5 years).

◾ Statutes are often silent on which records to keep.

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Topics: Compliance, Recordkeeping, Best Practices

10/29/20 8:20 AM

IRS Issues Guidance For Payments Made to State Unclaimed Property Funds

On October 16, 2020, the IRS issued new guidance applicable to payments made to state unclaimed property funds.

 

IRS Rev. Rul. 2020-24

The IRS provides that a payment from a qualified retirement plan to a state’s unclaimed property fund constitutes a designated distribution which is subject to federal income tax withholding and reporting requirements

In the example provided by the IRS, the employer is a plan administrator of a qualified retirement plan that does not include designated Roth accounts, employer securities, nondeductible employee contributions or accident or health plan benefits. The taxpayer is an individual with an accrued benefit in the plan with a value of $900 who did not make a withholding election.  In 2020, the taxpayer’s accrued benefit was paid to the state’s unclaimed property fund. 

Under the ruling, because none of the statutory exceptions from the treatment as a designated distribution apply (wages, a payment to a nonresident alien or corporation or dividends on employer securities), the payment and the amount withheld are a designated distribution and subject to federal income tax withholding. Additionally, because the amount is over the $10 reporting threshold, the distribution must be reported on Form 1099-R, with the distribution amount in Box 1 and the federal income tax withheld in Box 4.

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Topics: Reporting, Best Practices

10/6/20 7:42 AM

New York Sends Invitations to Participate in Unclaimed Property Voluntary Compliance Program

New York is increasing its focus on unclaimed property compliance. The New York State Comptroller’s Office of Unclaimed Funds (OUF) recently sent letters to companies regarding participation in the state’s Voluntary Compliance Program (VCP).

 

The correspondence states: 

We are contacting you because your company has conducted business in New York State, but has not filed reports with the New York State Comptroller’s Office of Unclaimed Funds (OUF) pursuant to the Abandoned Property Law (APL). The law can be found on the New York State Legislature’s website at http://public.leginfo.state.ny.us/lawssrch.cgi?NVLWO.

We encourage you to review your records for any unclaimed funds that may be subject to reporting. Unclaimed funds include uncashed checks issued to employees or vendors, outstanding accounts receivable credits and credit balances, and unredeemed gift cards/certificates, among others.

The first step of coming into compliance with the law is completing our Self-Audit Checklist. This online survey will help you to identify if your company is holding any unclaimed funds. Find it online at https://surveymonkey.rNYSVCU and use reference number XXXXXX. Complete the survey even if you find that you have nothing to report.

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Topics: Compliance, Audit, Best Practices, Voluntary Disclosure Agreements, New York

9/24/20 9:06 AM

The Role of Death and Dormancy for Unclaimed Property Holders

Organizations (holders) are not always made aware of the death of the people they do business with. While death plays an important role in the escheatment process, holders of banking and securities property types are not required to proactively search for and confirm death. Similarly, in the securities industry, SEC 17Ad-17 searches for lost shareowners are not required if the holder has received documentation that a shareowner is deceased

Death, however, is a factor in triggering escheatment. For example, death serves as the dormancy trigger for Roth IRA accounts in most states, as a possible trigger date for individual retirement accounts, and in states like Illinois and Maine, decreases the dormancy period for “other tax deferred” accounts.  In states that have adopted certain provisions of the 2016 Revised Uniform Unclaimed Property Act (RUUPA) as they relate to retirement accounts and securities, holders are not required to confirm death unless and until they receive a notice or indication of death (with death to be confirmed within 90 days).

Often, a holder becomes aware of the death of an owner when the next of kin contacts the holder. In other cases, notice of death comes from an SEC 17Ad-17 search of an account that is RPO (Returned by Post Office). There are no statutory requirements that force holders of banking or securities property to proactively determine if owners are deceased. Auditors, however, have been taking a more aggressive approach and assert that holders must proactively bump their records against the death master file (“DMF”) database. If an account owner is found to be deceased and there has been no contact with a beneficiary, the account is considered lost, which triggers escheatment and the property becomes fair game for the auditor. The National Change of Address (NCOA) database is similarly utilized by auditors as an attempt to locate accounts with updated addresses. According to auditors, these updates serve as proof that the holder does not know the location of the account owner, which triggers escheatment for some property types, including securities.

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Topics: Compliance, Reporting, Audit, Best Practices