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UNCLAIMED PROPERTY MYTHS

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UNCLAIMED PROPERTY MYTHS Powered By Docstoc
					 SCACPA – Piedmont Chapter
   UNCLAIMED PROPERTY
      Lunch and Learn CPE Program
              June 12, 2008

                       Panelists:

Barbara Rice, State of South Carolina, Assistant State
Treasurer, Director of Unclaimed Property

Melanie Hill, Dow Lohnes Price Tax Consulting Group LLC

Cara Hamilton, Assistant Treasurer, Guardian Building
Products
Outline for Today’s Program
•   History and Purpose
•   Examples of Unclaimed Property
•   Popular Myths and Reality Check
•   Priority Rules
•   Unclaimed Property Dictionary
•   Holder Obligations
•   Recent Developments and Minefields
•   Getting Started
•   Voluntary Disclosure Case Study
•   Best Practices
•   Questions
Future Program Topics
•   Amnesty
•   The State’s Responsibility
•   Holder Claims
•   Finding Abandoned Property Belonging to Your
    Company
•   Report of SC’s Treasury on UCP Funds
•   Report by the UCP Task Force
•   Update on COST UCP Committee
•   Practicum – A/R Credit Balances
•   Questions
HISTORY AND BACKGROUND
• Origins in British
  Common Law
• Expanded to include
  ―intangible‖ property
• Two types of escheat
  • traditional
  • custodial
PURPOSE OF
UNCLAIMED PROPERTY LAWS
•   Consumer protection
•   Centralized search for assets
•   Relief of liability
•   Public benefit
HISTORY AND BACKGROUND

• First Unclaimed Property statute
  passed in SC in 1971
• Program was transferred from
  Department of Revenue to State
  Treasurer’s Office in January
  1997
• Program operates pursuant to a
  modified version of the 1981
  Uniform Unclaimed Property Act
Examples of Reportable Property
• Unclaimed:
   • Cash in financial
     institution accounts
   • Checks, including
     paychecks
   • Credit balances
   • Insurance proceeds
   • Utility deposits
   • Dividends and other
     distributions
   • Proceeds of dissolution
   • Stocks and bonds
UNCLAIMED PROPERTY MYTH #1
• We don’t have an unclaimed property liability.
UNCLAIMED PROPERTY REALITY #1
• Practically ALL
  companies have an
  unclaimed property
  liability.
  • Any entity in
    possession of property
    belonging to another is
    potentially a HOLDER
    of unclaimed property
POSSIBLE HOLDERS OF UNCLAIMED
PROPERTY
• Automotive Dealers       • Insurers
• Business                 • Management
  Associations               Companies
• Fiduciaries              • Retailers
• Financial Institutions   • Universities/Colleges
• Government               • Utilities
  Agencies
• Hospitals
UNCLAIMED PROPERTY MYTH # 2
• Unclaimed property compliance is voluntary.
UNCLAIMED PROPERTY REALITY #2
• Unclaimed Property
  Compliance is
  Mandatory
  • All fifty (50) states
    have an unclaimed
    property law
  • SC Code of Laws
    provides for penalties
    for non-compliance
  • Sarbanes-Oxley
    considerations
UNCLAIMED PROPERTY MYTH #3
• I am only required to report to states in which I
  conduct business
UNCLAIMED PROPERTY REALITY # 3
• Unclaimed Property is reportable pursuant to
  the ―rules of jurisdiction‖ as set forth by the
  U.S. Supreme Court
FIRST PRIORITY RULE:
OWNER’S LAST KNOWN ADDRESS
• TX v. NJ (1965)
   State of owner’s last known address, if known.

• PA v. NY (1972)
    Money orders, travelers checks and similar
    written instruments have a special first priority rule
    which is based on the state where the purchase is
    made.

• DE v. NY (1994)
   SECOND PRIORTIY RULE:
   HOLDER’S STATE OF DOMICILE
• TX v. NJ (1965)
  State of holder’s incorporation or domicile if property
  owner’s address not known.

• This is state of incorporation for the holder. It is not the
  state where the operating HQ is located or the state of
  incorporation for the parent company or subsidiary.

• Under the 1981 and 1995 UCP Acts, the state of domicile
  may escheat property where owner’s address is known if
  the owner’s state does not escheat that type of property.
THIRD PRIORITY RULE:
STATE WHERE TRANSACTION OCCURED
• State where the transaction occurred out of
  which the property arose if the owner’s state
  and the holder’s state of domicile does not
  escheat the type of property.

• Sometimes referred to as the ―throwback‖ rule.

• Was argued in TX v. NJ (1965) but was not
  adopted by the Supreme Court. Nonetheless,
  a number of states have adopted this provision
  into their statutes.
DORMANCY PERIOD:
DETERMINING ABANDONMENT
 No owner-generated
  activity for a period of time
  (specified by state law).
 The owner has not
  otherwise indicated an
  interest in the account.
 The owner does not have
  another relationship where
  there has been owner-
  generated activity.
 See the dormancy period
  handout showing a matrix
  for all the states for each
  property type.
DORMANCY HOLDING PERIODS

                               NC   SC
           Wages               2    1
  Accounts Payable Checks      5    5
   State Courts / Agencies     1    5
 Checking / Savings Accounts   5    5
    Certificates of Deposit    10   5
    Official Bank Checks       7    5
DORMANCY HOLDING PERIODS

                                NC   SC
     Safe Deposit Boxes         2    5
IRA or other Retirement Funds   3    5
           Stocks               3    3
         Dividends              3    3
           Bonds                3    3
   Most All Other Property      5    5
PERFORM DUE DILIGENCE
 Send written notice to the
  property owner. Most states
  require that this be mailed
  no more than 120 days
  before filing the UCP report
  if:
   Company's records do NOT
    reflect the address of record as
    being inaccurate.
   The account is $50 or more
    (this amount will vary by state).
TIPS FOR EFFECTIVE DUE DILIGENCE

 Allow enough time for response.
 Make the letter easy to understand.
   Clearly state purpose of letter.
   Include a deadline for receipt of the response.
   Indicate what will happen if response not received.
   If providing state contact information, include when property
    will be sent.
   Provide company contact information for customer
    questions.
UCP Dictionary

• DUE DILIGENCE FOR THE HOLDER-- The degree of
  effort required by law that a holder must perform to
  locate the owner before reporting and remitting
  property to the state. Generally speaking, the required
  activity involves the holder sending some form of
  written notice to the owner.

• DUE DILIGENCE FOR THE STATE—Must provide
  constitutionally adequate notice to property owners.
RECIPROCITY
• Most states exchange incidental property
  • Less than ten accounts totaling less than $1000
• National Reciprocity Matrix www.treasurer.sc.gov
AGGREGATE REPORTING
• Items under an ―Aggregate Reporting Amount‖
  (which varies by state) may be reported in one
  lump sum total.
• No statutory requirement to provide owner
  address information for amounts reported in
  aggregate although some states ask for the
  information.
• The Aggregate Reporting Amount usually
  correlates to the amount which requires due
  diligence.
UCP DICTIONARY:
NEGATIVE REPORTS
 • The holder has no property to report for the
   year.
 • Some states require the holder to file a zero
   or ―negative report.‖ SC does not require
   negative reports.
 • Holders may choose to file a negative
   report even when it is not required; some
   holders refuse to file negative reports even
   if it is required if penalty does not apply for
   non-filing a negative report.
OBLIGATIONS UNDER THE
UNCLAIMED PROPERTY LAWS
• Create policies and procedures for dormant
  accounts.
• Review records annually to determine if you
  are holding property which appears to be
  ―abandoned‖.
• Perform due diligence to locate the owners.
• File an unclaimed property report each year.
• Maintain reporting records for 10 years.
FILE A COMPLETE, CORRECT
REPORT
• Provide as much information as possible
  to ensure the property is returned to the
  rightful owner. For example:
  • Provide social security numbers and last
    known addresses.
  • Identify the relationship between joint owners
    by using the correct codes. Be specific!
  • Provide any additional information that would
    assist in identifying the owner.
REPORTING
 •   Reports due before November 1 as of the previous June 30
      • Life Insurance company reports due to NC May 1 as of the previous
        December 31

 •   Holder Reporting Package
      • SC www.treasurer.sc.gov
            • Paper report for five or less properties
      • NC www.nccash.com
            • Paper report for fifty (50) or less properties


 •   Electronic Reporting Software HRS-Pro
       • FREE at www.wagers.net
       • Easy to use
       • Creates an encrypted file
       • Data can be imported from Excel
       • Produces due diligence letters & reports
       • Accepted by all states
       • Accounts available to owners sooner
REPORT TO THE CORRECT STATE

 State of owner’s last
  known address, if
  known
 State of holder’s
  incorporation or
  domicile if address
  not known
 State of transaction
  for some property
  types in some states.
REPORTING RESOURCES
• STATE TREASURER’S
  WEBSITE
   • www.treasurer.sc.gov
• NATIONAL ASSOCIATION OF
  UNCLAIMED PROPERTY
  ADMINISTRATORS (NAUPA)
   • www.unclaimed.org
• UNCLAIMED PROPERTY
  PROFESSIONALS
  ORGANIZATION
   • www.uppo.org
RECENT DEVELOPMENTS
Headlines: California Gets Caught
• Horror stories in the press and the courts
  reveal the emperor has no clothes in some
  states.

• Taylor reveals troubling nationwide trend of
  states using funds collected as unclaimed
  property to help balance their budgets.

• California’s thirst for revenue skews behavioral
  incentives of unclaimed property programs.
Unclaimed Property =
General Revenue



  • Where do unclaimed
    proceeds go?
  • How much of a revenue
    generator is unclaimed
    property for States?
               Delaware


―Abandoned property‖ Revenue is the third
  largest source of revenue for Delaware:

     1. Individual Income Taxes =
        30.6% at $1 billion
     2. Franchise Taxes =
        16.4% at $540 million
     3. Abandoned Property =
        11.1% at $365 million

                                    [FY 2007 Delaware Fiscal Notebook]
                  UCP Minefields
   COST’s Goals Regarding Unclaimed Property



• COST believes that compliance with unclaimed property
  statutes will improve to a greater degree if audit activity
  is applied to statutes perceived by holders to be
  reasonable, administered in a fair and efficient manner,
  and with an equitable administrative appeals process.

• COST works with state legislatures, state unclaimed
  property administrators, and others to develop an
  unclaimed property reporting environment that meets
  these objectives.
                    The COST Survey


• 61% of respondents indicated that Delaware had initiated an unclaimed
  property audit of their company. The state with the most votes after
  Delaware was New York with 7.3%.

• 53% of respondents indicated that 10 or more years were included in the
  scope of the audit.

• 63.6% said a third-party contractor was assigned to the audit. 55% said
  Kelmar was the contractor assigned to the audit.

• 56.3% said the state did not have a reason to believe they had failed to
  properly report UP.

• 78.1% said they did not have sufficient records going back as far as the
  auditors wanted to go.

• 50.0% had initial assessment amounts over $5 million.
Critical Issues for Business –
      The Perfect Storm
  • No statute of limitations

  • Overbroad definitions of property types

  • Statistical sampling techniques to identify small
    dollar amounts within large databases

  • No administrative appeals process
LOOKING FOR UCP
• Write-offs to income in prior years.
• Contract auditors working under a contingency
  fee based contract.
Getting Started!
Or a VDA Case Study

1. Review the corporate organization chart to identify
   the operating entities involved.
    • Consider the state incorporation/domicile of the
      operating entities

                             Parent




                 Operating            Operating
                  Entity               Entity
   Getting Started!
   Or a VDA Case Study
2. Consider how transactions are
   initiated and processed.
   • Shared Service Center
      • Check processing
   • Separate Units within operating
     entities
   • Disbursement outsourcing, i.e.,
      • Securities Transfer Agent
      • Payroll Disbursement
         Contractor
      • Benefit Plan Administrator
  Getting Started!
  Or a VDA Case Study
3. Identify the property
  types held by the
  entities involved.
4. Analyze records to
  determine which items
  have associated owner
  names and mailable
  addresses subject to
  the first priority rule
  (Texas v. New Jersey).
Getting Started!
Or a VDA Case Study

                      5. Research which
                        dormancy periods
                        are applicable to the
                        property types
                        represented by the
                        items with names
                        and valid
                        addresses.
 Getting Started!
 Or a VDA Case Study
6. Perform internal research on items above
  specific materiality limits to insure that they
  are really unclaimed property (NOT
  accounting errors) and are reportable
  unclaimed property. Examples of
  accounting errors or nonreportable property:
  • Accounts payable – Duplicate payments, reissues
    without voiding original
  • Accounts receivable – Credits where a valid offset
    exists
 Getting Started!
 Or a VDA Case Study
7. For items without a valid owner address
   and/or no owner record exists:

  • The property would be subject to the secondary rule
    (Texas v. New Jersey). Legal entity’s state of
    incorporation/domicile.

  • Can the property be reported under the parent company
    (to the parent company’s state of
    incorporation/domicile)?
Getting Started!
Or a VDA Case Study
8. Reporting Decisions
  &Considerations
   • Should property be
     reported early?
   • Should property be
     reported under state
     reciprocal
     agreements?
   • Must negative reports
     be filed?
Best Practices Discussion

Risk Management
1. Past Due Liability/Risk
   Assessment
  •    Who’s responsibility?
  •    Prior Year Write-offs
  •    Mergers, Acquisitions
      • Successor Liability
  •    Remediation
      • VDA
      • State Negotiation
Best Practices Discussion
                  2. Statute of Limitations
                     •   Is there an applicable
                         statute of limitations that
                         will limit past due
                         liability? (Counsel
                         review encouraged.)
                     •   Record Retention
Best Practices Discussion

3. Audit
  Management
  •   Planning
  •   Responsibilities
  •   Scope
  •   Confidentiality
  •   Timing
QUESTIONS?
Future Program
•   Amnesty
•   The State’s Responsibility
•   Holder Claims
•   Finding Abandoned Property Belonging to
    Your Company
•   Report of SC’s Treasury on UCP Funds
•   Report by the UCP Task Force
•   Update on COST UCP Committee
•   Practicum – A/R Credit Balances

				
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