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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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NAUPA Offers Guidance for Reporting IRAs and Tax Withholding

Posted By Administration, Thursday, December 5, 2019

On May 29, 2018, the Internal Revenue Service issued Revenue Ruling 2018-17, clarifying the agency’s position on traditional individual retirement account escheatment. Specifically, the ruling states that IRA holders – or trustees – must withhold 10 percent federal income tax and issue form 1099Rs when reporting unclaimed IRAs to the states. Holders are expected to comply by Jan. 1, 2020.  

 

The Holders Coalition – a group of organizations, including UPPO, whose members hold or represent owners of property – submitted comments on Sept. 4, 2018, and Nov. 19, 2019, to IRS and Department of Treasury officials regarding implementation concerns about the ruling. 

 

In November 2019, the National Association of Unclaimed Property Administrators issued the following guidance for retirement plan administrators to foster the uniform reporting of unclaimed IRAs and their tax withholding under IRS Revenue Ruling 2018-17 within the NAUPA II format. 

 

On January 1, 2020, The Internal Revenue Service’s Revenue Ruling 2018-17 will go into effect concerning withholding and reporting taxes with respect to payments from Individual Retirement Accounts (“IRAs”) to state unclaimed property programs. Holders reporting these properties should make use of the NAUPA Standard Deduction and Withholding code “TW” to represent “Income Tax Withheld.”

 

The value “TW” should be recorded in the PROPERTY record in the PROP-DEDUCTION-TYPE field. The amount of Federal Tax Withheld should be stored in the PROP-DEDUCTION-AMOUNT field. This code should be used for any taxes withheld from remitted properties.

 

The value of the property before the deduction should be stored in the PROP-AMOUNT-REPORTED field. The amount remitted to the state after the Federal Tax Withholding should be stored in the PROP-AMOUNT-REMITTED field. 

 

It is imperative that all withheld taxes are reflected in reports of unclaimed property, so that the claimants may be so advised and address this in conjunction with their tax reporting.

 

In the event of multiple deductions, the Tax Withholding code should take priority. Since only one deduction field is available, the state and federal withholdings should be totaled for inclusion. We hope that holders would consider providing additional information to the states for the detail of the deductions.

 

For more information related to the NAUPA reporting standard, please visit:

https://unclaimed.org/wp-content/uploads/NAUPAStandardElectronicFileFormat-11.20.19.pdf.

 

Companies who withhold taxes should report and remit those taxes to the Internal Revenue Service or other taxing agency. Contact your legal or tax advisor for reporting and remittance instructions. For more information on the Revenue Ruling 2018-17, visit: https://www.irs.gov/pub/irs-drop/rr-18-17.pdf.

 

UPPO will continue to monitor and report on developments related to IRS Revenue Ruling 2018-17. 

Tags:  IRAs  taxes 

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Understanding Delaware’s Verified Report Request and Compliance Review Process

Posted By Administration, Thursday, November 21, 2019

As part of the sweeping changes to Delaware’s unclaimed property law resulting from the passage of S.B. 13, the state created a new verified report and compliance review process. This process is intended to give both the state and holders the ability to review and correct any errors or oversights in annual filings without escalation to examination.

 

Unlike full-fledged unclaimed property examinations, the verified report and compliance review process does not require an invitation to participate in the voluntary disclosure program to proceed. 

 

“With the verified report and compliance review process, we are looking at holders who are already filing or who have filed reports in the past, reviewing their most recent report, making sure it’s accurate and giving them a chance to remedy any errors,” said Delaware State Escheator Brenda Mayrack. 

 

Verified Report Request

Delaware primarily sends verified report requests to holders who previously filed unclaimed property reports but did not do so in the most recent year, or holders who had a significant variance compared to previous filings. Variances may include property types dropping off or reappearing, significant changes in the amount reported, or noteworthy differences compared to other holders in the same industry. 

 

Holders receiving a verified report requests are asked to provide a copy of their unclaimed property policies and procedures and given the option to certify that the report was correct and complete, under penalty of perjury, or to identify and report/remit additional property and correct errors. 

 

“Because many [holders receiving a verified report request] are nonfilers, we want to know the determination that no liability was due to Delaware came after a deliberate process that was informed by robust policies and procedures,” Mayrack said. “Particularly for holders that have gone through a VDA or exam, it’s important for us to know they have implemented appropriate and robust policies and procedures for unclaimed property going forward.”

 

Compliance Review

Holders who fail to provide a sufficient response to Delaware’s verified report request, or who filed a negative or $0 report, may receive a compliance review request. 

 

“The verified report is not a prerequisite to a compliance review, but the compliance review does serve as the first step in escalation if there is a nonresponse or insufficient response to the verified report request,” Mayrack said.

 

Like the verified report request, a compliance review looks at variances compare to previous filings and compared to holders in the same industry. The compliance review also is not a prerequisite to a voluntary disclosure program invitation and subsequent exam notice.

 

Compliance reviews are a more abbreviated review of filings than unclaimed property examinations. Like verified report requests, they provide holders an opportunity to correct errors. Holders are given one year to complete the review, so the state expects a prompt response to compliance review notices.  

 

“The state is not going to have much patience for a nonresponse,” Mayrack said. “We do send follow-up reminders, but if we don’t seem to be getting the holder’s attention, it will be escalated.”

 

Compliance reviews include a more thorough request for documents supporting the most holder’s most recent unclaimed property filing than the verified report request. Information and document requests may include:

  • Supporting federal tax returns, financial statements, chart of accounts, trial balances.
  • Holder’s affiliated and related legal entities information.
  • General ledger reconciliations, check registers, voided check lists, aging/credit reports, etc., supporting Delaware annual report.
  • Third-party administrator information (if applicable) for securities, payroll, stored value cards, rebates, etc.
  • Proof of owner outreach (due diligence) efforts performed.
  • Unclaimed property policies and procedures.

If there is a finding of deficiency in the compliance review, the state can either collect and enforce that deficiency or, if the findings suggest a potentially larger compliance issue, refer the holder for a voluntary disclosure program invitation and subsequent exam (if the holder declines VDA participation).  

 

“If you receive a letter under this program, respond promptly,” Mayrack said. “A nonresponse is the quickest way to be escalated for additional enforcement measures, which means an invitation to the VDA program and, subsequent examination notice if the holder does not opt into the VDA program.”

Tags:  compliance  compliance review  Delaware  unclaimed property  verified report request 

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Unclaimed Property News Roundup

Posted By Administration, Thursday, November 14, 2019

Unclaimed property often makes news headlines beyond the frequent reports of states trying to return money to their citizens. Following is a recap of some recent stories getting news coverage from local media outlets. 

 

Finders keepers? Not so fast

“Find a penny, pick it up. All day long, you'll have good luck.” That may work if you find a penny, but you may not be so lucky if you find a wad of cash. An Oct. 22, 2019, WWBT TV story discussed who gets possession of found money in Virginia. Although several county sherrif’s departments had different policies, they all suggested Virginia’s unclaimed property statute determined the money should eventually make its way to the state. 

 

You can’t take it with you

Uncashed checks, forgotten 401k accounts and abandoned safe deposit boxes may be common sources of unclaimed property, but what about items people are carrying when they pass away? On Nov. 6, the Indianapolis Star reported on the findings of a Marion County, Indiana, coroner’s office audit. The “culture of mismanagement” detailed in the audit report included concerns that coroners were simply storing belongings unclaimed by families of the deceased rather than turning them over to the county. 

 

Another day, another scam

Several news outlets, including Idaho’s Times-News and WFMY in Greensboro, North Carolina, recently reported on the latest consumer scam involving unclaimed property. According the Better Business Bureau, unwitting individuals receive a postcard, email or social media message alerting them that they have an unclaimed reward of $100 or more from a major retailer, and the deadline for redeeming them is just a few days away. Upon calling the phone number, the scam victims are asked for personal information to confirm their identity, along with payment information to cover mailing fees. The scammer than uses the payment card information and personal information to make fraudulent charges. 

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UPPO Survey Examines State Unclaimed Property Return Rates

Posted By Administration, Thursday, November 7, 2019

State unclaimed property officials often promote their goal of reuniting citizens with their property. They use a variety of tactics to educate the public about unclaimed property and encourage people to search their unclaimed property databases. They perform their work under a patchwork of laws and policies that vary by state.

 

The Unclaimed Property Professional Organization Claimants’ Representative Committee is examining how these laws and other factors affect unclaimed property return rates. Its objective is to apply a data-driven approach to identify, organize and share existing laws and policies that maximize reunification while preserving balanced consumer protection.

 

The committee’s first step was establishing individual state return rates. Using data gathered through a Freedom of Information Act request, the committee reviewed the total dollar amount of unclaimed property received and paid annually for fiscal years 2013-17 from all states. The following return rate results are organized into four descending groups of 12 states each by percentage returned. The states within each group are listed alphabetically and do not reflect any return rate order within the group.

 

Three states – Indiana, Nebraska and Wisconsin – are not included in the following results. Their committee is reviewing the methodology used by the states to determine their results, which varied significantly from the other states, making them subject to question. 

 

Group #1

Average Return Rate: 48.25%

Return Rate Range: 58.75% – 43.14%

  • Connecticut
  • Florida
  • Illinois
  • Iowa
  • Maine
  • Mississippi
  • Nevada
  • New York
  • Rhode Island
  • Utah
  • Vermont
  • Washington

 

Group #2

Average Return Rate: 40.12%

Return Rate Range: 42.56% – 38.83%

  • Alaska
  • California
  • Kansas
  • Kentucky
  • Massachusetts
  • Michigan
  • Minnesota
  • Missouri
  • Montana
  • Oregon 
  • South Carolina
  • Tennessee

 

Group #3

Average Return Rate: 36.02%

Return Rate Range: 38.74% – 33.14%

  • Arizona
  • Arkansas
  • Hawaii
  • Idaho
  • Louisiana
  • Maryland
  • New Jersey
  • Oklahoma
  • Pennsylvania
  • Texas
  • West Virginia
  • Wyoming

 

Group #4

Average Return Rate: 19.44%

Return Rate Range: 31.18% – 8.59%

  • Alabama
  • Colorado
  • Delaware
  • District of Columbia
  • Georgia
  • New Hampshire
  • New Mexico
  • North Carolina
  • North Dakota
  • Ohio
  • South Dakota
  • Virginia

 

The committee is now analyzing state statutes and policies governing claims, private sector service provider restrictions, and unclaimed property account information restrictions to compare return rates with legislative and policy frameworks. This information will be the subject of a future committee report. 

 

Tags:  return rates  unclaimed property 

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Insights from the NAST Symposium, Part 4

Posted By Administration, Thursday, October 31, 2019
Updated: Thursday, October 31, 2019

The National Association of State Treasurers’ (NAST) Annual Treasury Management Training Symposium held during May 2019 in Providence, Rhode Island, was engaging and enlightening. The National Association of Unclaimed Property Administrators (NAUPA) is affiliated with NAST and led the well-attended unclaimed property track of educational workshops and sessions. This blog post is part four in a series about the topics discussed in the symposium sessions. Read part one hereRead part two hereRead part three here.

 

RUUPA

The session related to the 2016 Revised Uniform Unclaimed Property Act – RUUPA in the States – was insightful. Presenters, including state and Uniform Law Commission (ULC) representatives, said they had hoped for more adoptions. The ULC indicated there were three or four more good years of momentum, after which new adoptions of the Act could lose its legs.

 

Presenters also expressed frustration and disappointment about the American Bar Association (ABA) moving forward with its own version in the form of the ABA Model Unclaimed Property Act. The ULC disagrees with assertions that certain provisions in RUUPA are unconstitutional.

 

According to the ULC, states that adopt RUUPA, or a variant of the Act, must adopt certain provisions for them to consider it truly a RUUPA-inspired adoption. Examples of requirements include lookback limitations and holding periods before liquidation for securities.

 

There was debate on whether or not lookback limitations make sense. The argument was made that life insurance, property or other newly found areas of unclaimed property that were previously not being reported and remitted may never be enforceable with shortened lookbacks. Also, based on the dialogue, the life insurance industry and its associated trade organizations were not discussed in favorable terms during this discussion.

 

Presenters discussed different RUUPA versions, including those in Illinois and Tennessee, being proposed and enacted were examined. State representatives explained why they departed on certain provisions. Consideration was given to the states adding the provision related to estimation as a penalty that may be used by first priority states, rather than for estimation of a liability for second priority states (the classic reason given for why estimations are used). Based on the discussion, it seemed that a few people strongly advocated for this provision.

 

Mind the Noncompliance Gap

The Mind the Gap: Focusing a State’s Compliance Regime on Gaps in Reporting session focused on increasing annual compliance through making past due compliance meaningful. Questions this session intended to answer included: 

  • How do you increase compliance with limited resources? 
  • How do you increase compliance levels without creating a substantial burden on the holder community? 
  • How do you confirm that holders are reporting properly?

Panelists promoted the advantages of a multi-pronged approach, including offering meaningful and diverse voluntary compliance options for holders to catch up on past due unclaimed property liability, and maintaining a robust audit program. Further, annual report compliance reviews, traditional VDA program and voluntary self-examinations were included as a means to support this.

 

The benefits of maintaining a healthy audit program were highlighted. In short, the threat of enforcement drives compliance for both current and past due property. Panelists promoted a robust audit program indispensable to identify significant underreporting and to ensure that other voluntary and mandatory compliance initiatives are conducted efficiently and in good faith. They also discussed the value of creating a diverse package of compliance options, with some being voluntary and some being mandatory, both with varying degrees of rigor.

 

Using a compliance study results chart based on a sample analysis of holders with an annual revenue of greater than $100M, panelists noted that:

  • 44% of the companies in the sample had no prior reporting history. 
  • 37% of the sample companies reported less than $1,000 of general ledger property each year. 
  • 23% of public companies only report securities. 
  • 45% did not report securities at all.

In the last few years, there have been periods where patterns in compliance gaps emerged, relative to specific property types, such as accounts receivable credits, royalties and gift cards. A current area of concern where there seems to be common underreporting compliance gaps are in the mergers and acquisitions arena. Challenges with mergers and acquisitions include the availability of pre-M&A records and the timing in relation to closing of the deal. 

 

The session endorsed the prospect of devising efficient methods to capture the material past due unclaimed property before or even contemporaneously with deal closings. States continue to collect and analyze data from annual reporting, audits and compliance initiatives to target areas with known historic gaps while looking for new emerging patterns.

 

The session also covered audit candidate selection. This process begins with identifying candidates that are likely to have unreported unclaimed property. The next step is to identify and obtain broad available information from government, commercial and public sources and developing an understanding of the entities using company information obtained from different sources. Additionally, states are analyzing candidates’ previous reporting history and comparing it to others in the same industry with a similar size and year of incorporation. After this analytical process, final determinations depend on many factors, which differ based on each state or industry specifics.

 

There were reports on Delaware noting $800M has been taken in through Drinker Biddle & Reath’s administration of the secretary of state’s voluntary disclosure agreement process. DBR reported that over 580 total VDAs had been concluded in the prior years, with around 60% of collections being related to securities. This has resulted in increased compliance. Also, it was reported that very few VDA seekers had been transferred to the Delaware escheator for audit.

 

Legal Issues in Unclaimed Property Audits

On the final day, a session titled Committee of Legal Practices Deep Dive into the Recurring Legal Issues in Unclaimed Property Audits was scheduled. According to the description, it was intended to discuss strategies for addressing recurring issues and legal arguments raised by holder advocates. Participants were to include state unclaimed property officials and third-party auditor representatives. 

 

This session was intended to have restricted attendance. Unfortunately, it had not been published or otherwise publicly known in advance that attendance was restricted. Therefore, the session was changed into an open forum, and the slide deck for the session was not presented. 

 

Discourse in the open forum session included:

  • Various “gamesmanship” seen from holders, attorneys and holder advocates.
  • Attorneys allegedly slowing down the process for fees, such as protracting the NDA process.
  • States considering the use of audit fees and subpoena power in reaction to slowed audits.
  • Gamesmanship around GDPR, HIPAA, and other data security concerns; exceptions and ways to skirt such arguments.
  • Increased use of “come on site” tactic.
  • Concept of record availability and completeness.
  • Due process nexus, derivative rights and “ripeness” rebuttals.
  • What constitutes a “reason to believe” for an audit to be initiated.

The educational workshops and sessions at the unclaimed property track of the recent NAST Symposium covered important insights on RUUPA and audits. While the topics covered may not directly or indirectly impact all property type holders, it is worthwhile to remain aware of NAUPA developments. It is also important to be informed of opportunities to work together with states, where our expertise and needs are aligned, and we can share our respective unique expertise and insights, and related unclaimed property challenges or issues.  

 

Christa DeOliveira is chief compliance officer with Linking Assets Inc. Michael Unger is a senior manager with Crowe LLP’s unclaimed property practice. 

 

 

Tags:  audits  NAST  RUUPA 

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