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					JMS Advisory Group, LLC

   Foundations of
 Unclaimed Property

  James O. Santivañez
• Origins from British Common Law/Feudal Times

• Escheat
   – Traditional
   – Custodial

• Bona Vacantia

• Unclaimed Property is not a “tax”
            What is Unclaimed Property?

• Generally Consists of intangible personal property that has a
  business or organization has in its possession that has not
  been claimed by the true owner

• Also referred to as “abandoned property” or “escheat”

• Monetary & other assets such as bank accounts, refunds,
  uncashed checks, securities, and credit balances
• Activity
   – Action taken by the owner of the property which may include
     making a deposit, a withdrawal, correspondence with the holder, or
     any other action that the statute deems adequate.
• Aggregate
   – The threshold dollar amount of an individual owner’s account which
     would require detailed reporting and/or due diligence efforts.
• Custodian
   – An individual or entity that holds property until it is delivered to the
     rightful owner (State).
                  Terminology Continued
• Dormancy Period
   – Period of time the holder retains the property before reporting
     compliance is required.
• Due Diligence
   – A series of efforts required by law that a holder must perform to find
     the rightful owner before remitting the property to the state.
• Holder
   – The entity that is in possession of, or controls the property until it is
     transferred to the state on behalf of the lost owner
• Holder Domicile
   – The holder’s state of incorporation or organization
                  Terminology Continued

• Indemnification
   – An agreement that protects a party from loss by transferring the
     responsibilities to the third party.
• Intangible Personal Property
   – A right or possession of a non physical or abstract nature that has
     value, such as a financial asset having no intrinsic value but
     representing value.
• Last Known Address
   – The location of the owner of unclaimed property as reflected on the
     holder’s records; often meaning sufficient for the purposes of the
     delivery of mail.
                  Terminology Continued

• Rightful Owner
   – A person and/or entity who has the legal right to make a claim to the
     property (parens patriae)
• State
   – Can mean any jurisdiction (Most often a state, U.S. District or
     Territory), that “steps into the shoes” of a holder after a statutorily
     defined dormancy period.
• Uniform Unclaimed Property Acts
   – The Uniform Acts are the basis for states unclaimed property laws.
     Uniform Acts were promulgated in 1954, 1966, 1981 and 1995.
                Originating U.S. Case Law
• Constitutionality of Escheat Statutes

   – Hamilton v. Brown (1896)

   – Cunnius v. Reading School District (1905)

   – United States v. Klein (1938)

   – Anderson National Bank v. Luckett (1944)
                      The Uniform Acts
• Uniform Unclaimed Property Acts
   – The Uniform Disposition of Unclaimed Property Act originated in
     1954; with subsequent revisions occurring in 1966, 1981 and 1995.
   – The acts were originally intended to guide states as they drafted and
     adopted their own unclaimed property laws.
   – All states and U.S. Territories have unclaimed property laws of their
     own, but these laws vary in the degree of adherence to the Uniform
   – The Uniform Acts were intended to promote uniformity.
   – Does uniformity really exist?
            The Uniform Acts - Continued
• Uniform Disposition of Unclaimed Property Act (1954)
   – Was adopted in 12 states
• Revised Disposition of Unclaimed Property Act (1966)
   – Adopted with modifications by 13 states and the District of Columbia
• Uniform Unclaimed Property Act (1981)
   – Adopted by 33 states and the Virgin Islands
• Uniform Unclaimed Property Act (1995)
   – Adopted by 6 states
             Currently Applicable Case Law
• U.S. Supreme Court Case Law
   – Texas vs. New Jersey, 379 U.S. 674 (1965)
       • Court concluded that unclaimed property goes to “state of last known address of
         the creditor, as shown on the debtor’s books and records”

   – Pennsylvania vs. New York, 407 U.S. 206 (1972)
       • Examined the transaction priority rule not as a default to the first and second
         priority rules established in Texas vs. New Jersey, but rather as a means for
         “allowing the State of the ‘place of purchase’ to escheat under the primary rule.”

   – Delaware vs. New York, 507 U.S. 490 (1993)
       • Court concluded that “no State my supersede [the Texas rule] by purporting to
         prescribe a different priority under State law”
                        Reporting Basics
• Where to Report?
   – Priority Rules/Texas v. New Jersey

• What Property is Reportable?
   – Abandoned Intangible Property; the Presumption of Abandonment

• When to Report?
   – Varies by State – Typically Fall & Spring

• Why Report?
   – It’s the Law…Avoid Penalty and Interest
   – Pay for Louisiana to build roads…
   Louisiana Approves Funding to Finish I-49
• “HB370 allows the Department of Transportation and
  Development to use bonds secured by unclaimed property
  funds to help complete the extension that will stretch from
  Interstate 220 north of Shreveport to the Arkansas line.”

• “The unclaimed property funds will account for $7.5

• Article published July 8, 2011 by
Questions & Answers
 JMS Advisory Group, LLC


Next Session Starts at 10:00 AM

  JMS Advisory Group, LLC

 Compliance and State
Reporting Requirements

Timothy Goodyear & Jay Starr

       Compliance Reporting Requirements

• Property Subject to Custody
   – The 1954, 1966 and 1981 Uniform Acts did not specify the property that was
     subject to the state’s custody
   – In these Acts, the property was identified by the type of holder
   – The 1995 Uniform Act addresses both the specific types of property and the
     type of holder

• Periods for Presumption of Abandonment
   – Varies under the Uniform Acts for different types of property
   – Have been shortened with each succeeding Act
   – Varies even under specific state laws, with an overall trend towards
     shortening dormancy periods all property types
Compliance Reporting Requirements – Where?
• Where to Report
   – State of owner’s last known address
   – State of holder’s incorporation or domicile if not known
• All states and the District of Columbia, Virgin Islands, Guam
  and Puerto Rico have Unclaimed Property Laws
• Several Provinces in Canada Now Mandate Unclaimed
  Property Compliance
• Foreign Address Property
 Compliance Reporting Requirements – What?
• Types of Unclaimed Property Associated with Banks:
   –   Checking and Savings Accounts
   –   Matured CDs
   –   Security Deposits
   –   Trust Accounts
   –   Unidentified Deposits
   –   Safety Deposit Box Contents
 Compliance Reporting Requirements – What?
• Types of Unclaimed Property Associated with Insurance
   – Individual and Group Policies
   – Proceeds Due Beneficiaries
        • Matured Policies
   –   Premium Refunds
   –   Unidentified Premium Payments
   –   Aged Credit Balances
   –   Drafts Not Presented
 Compliance Reporting Requirements – What?
• Types of Unclaimed Property Associated with Retail,
  Manufacturing, and Other Types of Companies:
   –   Uncashed Vendor/Payables Checks
   –   Uncashed Payroll Checks
   –   Unredeemed Gift Certificates
   –   Accounts Receivable Credit Balances
   –   Benefits Payments
   –   Commission Payments
   –   Unused Groupons?
 Compliance Reporting Requirements – What?
• Types of Unclaimed Property Associated with Utilities:
   –   Customer Deposits
   –   Refunds and Rebates
   –   Membership Fees
   –   Utility Refunds
   –   Court Ordered Refunds
   –   Special Assessment Fees
 Compliance Reporting Requirements – What?
• Types of Unclaimed Property associated with Health Care
   –   Patient Credit Balances
   –   Salary/Wages
   –   Accounts Payable
   –   Unidentified Remittances
   –   Self-insurance Payments
   –   Stocks/Dividends Checks
   –   Debt/Interest Checks
 Compliance Reporting Requirements – What?
• Types of Unclaimed Property Associated with Oil and Gas
   –   Royalties
   –   Production Payments
   –   Net Revenue Interest
   –   Salary/Wages
   –   Payment to Participants
   –   Bonuses
   –   Delay Rentals
   –   Surface and Subsurface minerals
              Standard Dormancy Periods
• Depends on the Property Type and the State
• Typical Dormancy Periods:
   –   Payroll/Commissions        MS01         1 Year
   –   Accounts Payable           MS08         3-5 Years
   –   Accounts Receivable        MS09         3-5 Years
   –   Other Outstanding Checks   MS16         3-5 Years
   –   Gift Certificates/Cards    MS12         3-5 Years

• Recent Activity Includes Numerous States Reducing
  Dormancy Periods In Order To Close Budget Gaps
    Examples of State Specific Requirements
• California
   – Requires both a “notice” and “remit” report
• Indiana
   – Requires filing electronically on state website
• New York
   – Requires sending additional due diligence letters for amounts greater than
• North Carolina
   – Recently passed legislation requiring SSN, DOB, DL# and additional
• Tennessee
   – Requires electronic NAUPA format with paper coversheet for all reports and
     must be encrypted
  Quantification of Reporting Responsibilities

• Determining Your Liability: Documents
   –   Know the law: how far are we to look back?
   –   Corporate Structure
   –   Chart of Accounts & Trial Balances
   –   Systems/ERP History
   –   Prior UP Report/Audit Activity
   –   O/S Check Listings from all disbursement Accounts
   –   Accounts receivable aging reports
   –   Journal Entries of amounts written-off
   –   Description of third party administered programs
   –   Mergers/Acquisitions
                Exposure & Quantification

• Determining Your Liability: Exemptions & Deductions

   – Review applicable state statutes to determine exemptions and

   – Common examples:
       • Business to Business (B2B)
       • Gift Certificates
       • Payroll Exemptions
                Exposure & Quantification

• Preparing the Report: Basic Checklist

   –   Have you performed due diligence?
   –   Does the report need to be filed electronically?
   –   Does the payment need to be made electronically?
   –   Who can sign the report?
   –   Are negative reports required?
   –   When is the report due?
        • Postmark vs. Received by
           Exposure & Quantification Test Case
                        Total Population of Outstanding Checks
 Owner Name          Owner State     Property Type       Transaction       Amount
John Smith          Louisiana       Payroll            6/30/2010       $25.00

XYZ Company         Arizona         Accounts Payable   6/30/2008       $49.99

John Doe            Ohio            Payroll            6/30/2010       $45.00

Jane Doe            Ohio            Payroll            6/30/2010       $55.00

ABC Supermarket     Louisiana       Accounts Payable   6/30/2006       $125.00

123 Manufacturing   Colorado        Accounts Payable   6/30/2006       $26.00

Fred Flintstone     Georgia         Payroll            6/30/2010       $100.00
           Exposure & Quantification Test Case
                                Is Due Diligence Required?
 Owner Name          Owner State       Property Type       Transaction       Amount
John Smith          Louisiana         Payroll            6/30/2010       $25.00

XYZ Company         Arizona           Accounts Payable   6/30/2008       $49.99

John Doe            Ohio              Payroll            6/30/2010       $45.00

Jane Doe            Ohio              Payroll            6/30/2010       $55.00

ABC Supermarket     Louisiana         Accounts Payable   6/30/2006       $125.00

123 Manufacturing   Colorado          Accounts Payable   6/30/2006       $26.00

Fred Flintstone     Georgia           Payroll            6/30/2010       $100.00
           Exposure & Quantification Test Case
                              Exemptions & Deductions
   Owner             Owner      Property                            Reportable
                                           Transaction     Amount
   Name               State       Type                               Amount
John Smith        Louisiana   Payroll      6/30/2010     $25.00     $25.00

XYZ Company       Arizona     Accounts     6/30/2008     $49.99     $0.00
John Doe          Ohio        Payroll      6/30/2010     $45.00     $0.00

Jane Doe          Ohio        Payroll      6/30/2010     $55.00     $55.00

ABC               Louisiana   Accounts     6/30/2006     $125.00    $125.00
Supermarket                   Payable
123               Colorado    Accounts     6/30/2006     $26.00     $1.00
Manufacturing                 Payable
Fred Flintstone   Georgia     Payroll      6/30/2010     $100.00    $100.00
Questions & Answers
       JMS Advisory Group, LLC

       Seeking Amnesty &
      Voluntary Settlements

James O. Santivañez & Timothy Goodyear

                   Why Comply and File?

• State Unclaimed Property Laws

   – All States have enacted unclaimed property laws

   – Unclaimed property reporting is mandatory, not voluntary

   – States have the ability to charge penalty and interest for non-
  If You’ve Never Reported – What Should You Do?
• Verify that all unclaimed property is captured
   – Thoroughness is important

• Consideration of prior M&A activities

• Interface with other company departments

• Importance of a cohesive approach

• Developing Policies/Procedures
        Voluntary Disclosure Agreements

• What is a Voluntary Disclosure Agreement
      • Most states have adopted some type of voluntary disclosure

• Amnesty Programs
      • Much more formal and offered by some states on an occasional
      • FL, IL, TX as examples
 Why seek a Voluntary Disclosure Agreement?

• If Accepted, the Benefits Include:

   –   Limited Look Back Periods
   –   Waiver of Interest in Most Cases
   –   Waiver of Penalty in Most Cases
   –   Limitations on Future Audits
   –   Written Closure = Security
                    VDAs: Getting Started

• Request / Petition for Admittance into the Program
   – Make sure you qualify
       • Not Currently Under Audit in that State
       • No Filing History
   – Contact the state(s)
       • In Louisiana: Mr. Benny Spann

• Examine the Need for Additional Help
   – Get Other Department Personnel Involved
   – Need to Hire Outside Counsel / Consultants?
Questions & Answers
JMS Advisory Group, LLC

     State Audits

   James O. Santivañez
                         Audits – Types
• State Audit Department
   – Typically conduct an audit of property owed just to that individual
   – On occasion they will perform a “Joint Audit” meaning they will
     cooperate or act on behalf of another state in the audit

• Third Party Audit
   – A firm that typically audits on behalf of many states at one time
   – Typically work on a contingent fee arrangement
   – Increased activity as of late; new audit firms have formed
               Audits – Increased Activity
• Preparing the Report: Basic Checklist

• Where most of the new property types are coming from
   – “Uninvoiced Payable”

• With belt-tightening, states that have historically been
  lenient are now pursuing interest/penalties for non-

• Industry-specific audit focus is back in certain states
                        Audit Triggers
• Registering in a state to do business or pay tax, but not filing
  unclaimed property reports
• Industry type – oil & gas, financial services, and healthcare
  are traditionally most attractive
• State of Incorporation
• History of mergers & acquisitions
• Period(s) of rapid growth
• Claiming property from the state with no reporting history
• Drive-by audit
    Audits – We Got the Notice… Now What?
• Take the audit notice seriously
   – The auditors represent the states and have the authority to assess
     interest and penalties
• Assess your potential liability
   – Have an idea of what the potential assessment may be. Virtually
     every company has some degree of liability
• Determine how you will handle the audit
   – Internally or outside consultation
• Make sure the scope of the audit is clearly defined
   – Do not give the auditors unsupervised access to your records, assign
     one point of contact to assist
                      Audit Elements
•   Notice and request for information
•   Opening conference
•   Identification of key audit elements
•   Detail review/sampling
•   Extrapolation/estimation
•   Closing conference
                Audits – Holder’s Rights
•   Due Process
•   Adherence to Statutes & Regulations
•   Adherence to State-specific Written Audit Procedures
•   Claiming/Application of Exemptions and Deductions
•   FOIA Request
•   Confidentiality
•   Object to Audit Results
                 Audits – State Rights
• To audit your books and records specific to unclaimed
  property for participating states

• To expect a reasonable response time

• To assess interest and penalty

• To litigate
       Audits – Initial Reaction & Response
• Assess Your Liability Realistically Through:
   – Internal investigation with general counsel’s involvement
   – Engage outside consultant – accountant and/or attorney

• Implement Your Strategy By:
   – Identifying your team
   – Involving in-house counsel sooner rather than later
   – Ensure counsel is in agreement with the audit-defense approach
         Audits – Dealing with the Auditor
• Respond Quickly & Professionally
• Have Defenses in Mind
• Know the Auditor (or Auditing Firm) and/or the State(s)
• Know the law
• Be prepared to take control
• Be prepared to take off the gloves
         Audits – Dealing with the Auditor
• Can you demand that the third-party auditor agree not to
  bring additional states into the audit?
                      YES – and you should!

• A confidentiality agreement should be put in place, and
  must include such a provision.
• As a practical matter, the audit should not proceed until such
  an agreement is in place.
• You do not have to provide an auditor with information
  relating to states that are not participating in the audit.
              Audits – Simple Demands
• Demand: confidentiality

• Demand: proper authorization & fulfillment of notice

• Demand: to know proposed methodology at outset

• Demand: official written closure from each state
  represented in the audit
Audits – Limited or Unavailable Records

           The burden of proof rests
         with the holder to contest the
         presumption of abandonment.
             Audits – Statistical Sampling
• Many auditors may try to impose statistical sampling based
  on readily available records.

• Samples based on available records are used to extrapolate
  liability in years under audit where records are not available.

• Most states and the auditors working on their behalf have
  the authority to use sampling in these audits.
        Audits – Sampling Questions to Ask
• Is the auditor qualified to implement a truly statistical

• Is the validity and error rate within state-accepted

• Will the results be representative once extrapolated?

• Review the methodology before any sample is pulled.
Questions & Answers
 JMS Advisory Group, LLC


Next Session Starts at 2:40 PM

 JMS Advisory Group, LLC

Unclaimed Property 201

Timothy Goodyear & Jay Starr

                 Compliance Calendar
• Establish Timeframes

• Prepare a timeline and calendar for important steps in the
  reporting process

• Design and specify procedures to detect errors or
  irregularities in the unclaimed amounts
Compliance – When Are Reports Due?

                                  March 1
                                  March 10
                                  March 31
                                  April 15
                                  April 30/May 1
                                  July 1
                                  Oct 31/Nov 1
                                  Nov 1/June 15
                              Texas Report Due Date
                               Changes to July 1 in 2012
                       Record Retention
• Unclaimed Property v. Tax
• Retention Challenges
   –   Retention Policies Tied to Tax Requirements
   –   Mergers and Acquisitions
   –   Corporate Downsizing/Turnover
   –   Accounting System Changes
              Compliance – Due Diligence
• When is Due Diligence Required?
   – Typically 60 to 120 Days prior to the report due date
• Do I Have to Perform Due Diligence?
   – Yes. It is statutorily required for most states.
• I have 100 items in the amount of $.01, Do I have send a
  letter for those items?
   – No. Most states have an amount threshold in between $20-$50
• Can I Recover my Costs for Due Diligence?
   – Sometimes. Some states allow a line item expense deduction on the
     report total for due diligence costs.
   Compliance – Deductions and Exemptions

• Review Applicable State Statutes to Determine Exemptions
  and Deductions
• Common Examples:
   – Business to Business (B2B)
       • Examples: AZ, ID, KS, MD, MA, NC, OH, VA and WI
   – Gift Certificates
       • Some states allow deductions and others exempt completely
   – Payroll Exemptions (KY, MI and OH)
   – Deductions & Exclusions (CO and ID)
           Exposure & Quantification Test Case
                              Exemptions & Deductions
   Owner             Owner      Property                            Reportable
                                           Transaction     Amount
   Name               State       Type                               Amount
John Smith        Louisiana   Payroll      6/30/2010     $25.00     $25.00

XYZ Company       Arizona     Accounts     6/30/2008     $49.99     $0.00
John Doe          Ohio        Payroll      6/30/2010     $45.00     $0.00

Jane Doe          Ohio        Payroll      6/30/2010     $55.00     $55.00

ABC               Louisiana   AR Credit    6/30/2006     $125.00    $125.00
123               Colorado    Accounts     6/30/2006     $26.00     $1.00
Manufacturing                 Payable
Fred Flintstone   Georgia     Payroll      6/30/2010     $100.00    $100.00
                Compliance – Options

• Manual

• Software

• Outsource

• Do Nothing (playing the audit lottery)
                  Compliance – Manual

• Create a matrix for due dates and review states websites for
    – Due Diligence
    – Reporting by Industry
•   Multiple Spreadsheets
•   Mail Merge for Letters
•   Manage/Track Due Diligence Responses
•   Keep Records for Retention Period
•   Personnel Training & Process Development
                Compliance – Software

•   Centralized Database to House Records
•   Updates Legislative Changes
•   Maintain Control of Records
•   Provides Reminders for Due Dates for Letters and Reports
•   Generates Due Diligence Letters
•   State Reports are Completed and Retained
•   Creates Standard Electronic NAUPA Filing Format
                Compliance – Outsource

• Experts in the Field Oversee the Function
    – Due Diligence
    – Reporting
•   Employees Can Focus on True Value-Added Activities
•   Lack of IT Resources
•   Payment Issuance
•   Reports are Done Correctly and on Time
        Examples of Recent Law Changes

• Nevada S.B. 136 – Reduces from 3 years to 2 years the
  period after which unclaimed property is presumed to be
  abandoned if the holder holds more than $10 million in
  property presumed abandoned on the most recent report
  filed by the holder.
• Texas H.B. 257 – The bill lowers dormancy periods for money
  orders from 7 to 3 years.
• North Carolina H.B. 692 – Requires holders to report
  additional owner information including SSN, DOB, DL#, and
  email address where applicable.
Questions & Answers
JMS Advisory Group, LLC

Recovering Funds for
   Your Company

Timothy Goodyear & Jay Starr

            Asset Recovery

   We have told you how to manage the flow
of your company’s money to the various states…

Now let’s try to get some of your money back!
 Asset Recovery – Recover Funds for Your Company
• States have billions in their unclaimed property accounts
  waiting to be claimed
• Identify your company’s history
   – M&A activity
   – Old DBAs and Locations
• Gather corporate documents
   –   Letter of authorization to claim funds
   –   Address verification documents
   –   IRS Schedule 851
   –   Corporate Entity Map – Organization Chart
                        Asset Recovery

• There is no centralized source to search for unclaimed
• There are multiple sources for unclaimed property
   –   Pre-Escheated Property
   –   Escheated Property
   –   Bankruptcy Funds
   –   Federal Funds
   –   Municipality Funds
           Asset Recovery – Where to Look
• Start with the State UP Websites
    – Check the databases regularly – most update at least once per year
    – is a good place to access each state website
• Missing Money –
    – Consolidate searching source, about 40 states participate, sometimes
      can be outdated
•   Bankruptcy Courts
•   Federal Sites
•   Letter Requests
•   Recovery Professionals
           Asset Recovery Claim Process

• Filling out claim forms is a manual process

• Some forms can be filled out online while others are mailed
  directly to you

• Provide evidence of the rightful claim in advance, to speed
  up the claims process

• Expect multiple follow-up requests from certain states
          Asset Recovery – Tips of the Trade
• Know how each database functions
   –   Wildcard search (* represents unknown terms, etc.)
   –   Exact term match
   –   Partial term match
   –   Spelling, Spaces, & Order
        • The Coca-Cola Company, Coca Cola, Coke, CocaCola, Coke Cola, Coke Co, etc.

• Track your activity & results
   – Timeline what you did and when you did it
   – Follow up on your claims in a timely fashion
• Be patient and organized
   – It could take a year or longer in some states to recover funds
                Asset Recovery Caveats

• Is your company up to date in its filings?
• Be aware of the possibility of “offsets”
• Not all property is included on a website so make sure you
  utilize secondary sources to identify unclaimed property
• Confirm that the property is not held in a fiduciary capacity
  or is jointly owned.
Questions & Answers
                    Thank You!
We enjoyed our time with you here today and hope that you
          found this presentation to be helpful.

               JMS ADVISORY GROUP, LLC


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