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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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UPPO Advocacy Update: December 2018

Posted By Administration, Thursday, December 13, 2018

To help members remain aware of UPPO’s advocacy activities, the Unclaimed Property Focus blog recently began including a recurring Advocacy Update when legislatures are active or significant advocacy activity has occurred. Following are recent activities and trends from UPPO’s Government Relations and Advocacy Committee (GRAC).

 

Illinois Administrative Rules

In 2017, Illinois passed legislation inspired by the Revised Uniform Unclaimed Property Act. The Illinois treasurer’s office was charged with developing administrative rules intended to clarify how the law will be carried out. Far more detailed and comprehensive than most states’ administrative rules, the proposed rules have since been published for review and comments. 

 

The proposed rules include many areas of concern, addressed by GRAC and other members of the Holders Coalition in comments submitted on Nov. 12. Among the noteworthy areas of concern for holders are issues related to treatment of tax-deferred retirement accounts, due diligence, audit practices and the state’s voluntary disclosure agreement program.

 

The treasurer’s office is expected to issue final rules early in 2019. Because state unclaimed property regulations and practices are sometimes emulated by other states, and NAUPA has shown interest in the Illinois version of the RUUPA, holders and their legal teams may benefit from reviewing the proposed rules, even if they don’t immediately apply to their companies. 

 

Washington, D.C., RUUPA Bill Comments

On Jan. 5, 2018, District of Columbia Council member Jack Evans introduced bill B22-0654, the district’s version of the Revised Uniform Unclaimed Property Act. The bill sat idle throughout much of the year until an Oct. 10, 2018, public hearing. As with many of the bills introduced nationwide in the wake of the RUUPA’s adoption by the Uniform Law Commission, the D.C. bill contains potential issues.

 

GRAC is in the process of drafting comments regarding the bill. Areas of concern include provisions related to taking of custody, derivative rights and securities. 

 

Percolating Legislation

With November’s elections behind us and state legislatures preparing to convene in January, GRAC is keeping an eye on states where RUUPA-inspired bills are likely to arise. In early 2019, such legislation may be introduced in Colorado and Nevada. 

 

Priority Issue Workgroups

In preparation for the next congressional session, the GRAC Priority Issue Workgroups continue to refine talking points and developing single-page position papers about key issues. 

 

As more and more legislatures and regulatory agencies take on issues affecting unclaimed property compliance, advocacy has become an increasingly important role for UPPO.

Please take a few minutes to complete our Government Relations and Advocacy Survey to help us build our grassroots network. Responses will give us the ability to mobilize UPPO members when we are faced with legislative and regulatory challenges and opportunities.

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HIPAA and Unclaimed Property

Posted By Administration, Thursday, December 6, 2018

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is intended, in part, to protect patients’ privacy. The law establishes standards for handling and securing potentially sensitive protected health information (PHI).

 

HIPAA is not typically associated with unclaimed property. However, for property holders in the health care field or that work with the health care field, it’s important to understand HIPAA implications. Considerations related to HIPAA most often come into play when dealing with an audit or a voluntary disclosure agreement. Auditors or VDA administrators may ask for information that, when shared, could violate HIPAA provisions.

 

HIPAA precludes covered entities, such as health plans, insurers and providers from disclosing PHI to third parties, with a few narrow exceptions. According to the Department of Health and Human Services, PHI includes demographic information relating to:

  • An individual’s past, present or future physical or mental health or condition.
  • The provision of health care to the individual.
  • Payment for health care that may identify the individual.

 

PHI includes common identifiers, such as name, address, birth date and Social Security number, when they can be associated with health information. It can also include identifiers that could be used to trace an account to a specific medical issue, such as internal account numbers.

 

“There is a general prohibition on disclosure of records dealing with mental health, substance abuse treatment, genetic testing and HIV/AIDS under HIPAA and various federal and state laws, absent patient consent,” said Scott Heyman, partner with Sidley Austin LLP. “Those laws are very strict and without exception. Even if exceptions are available for providing other PHI to third parties, they are not available for those conditions.”

 

HIPAA violations are subject to civil and criminal penalties, so great care needs to be taken to ensure compliance.

 

Three exceptions to PHI disclosure without patient consent exist under HIPAA:

  • Disclosure to public health authorities.
  • Disclosure in health oversight activities.
  • Disclosure for law enforcement purposes.

 

State treasurers and controllers conducting unclaimed property audits are not public health authorities and are not engaged in health oversight activities, so the first two exceptions do not apply. 

 

The “disclosure for law enforcement purposes” exception is broad enough to cover unclaimed property audits. In order to disclose information under the law enforcement exception: 

  • PHI sought must be “relevant and necessary to a legitimate law enforcement inquiry.”
  • The request must be ”specific and limited in scope to the extent reasonably practicable in light of the purpose for which the information is sought.” 
  • “Deidentified information could not be reasonably be used.” 

 

Disclosure is permitted only to law enforcement officials, defined as “an officer or employee” of an eligible agency. Thus, PHI may not be disclosed to private government contractors without patient consent. In contrast, the public health and health oversight exceptions expressly permit disclosure of information to government contractors. 

 

PHI should be retracted from items provided to auditors. 

 

“If they insist that they need PHI for audit purposes, providing the information directly to the state and letting the state decide what to do with it may be a reasonable response,” Heyman said.

 

Redaction can be very time-consuming and one of the more burdensome aspects of an unclaimed property audit in the health care industry. 

 

“Often the information at issue includes things like explanations of benefits, where you’re proving out voids and reissuances,” said Heyman. “Those tend to be copies of paper documents. It means reading those documents and crossing out PHI with a black marker. It’s an intensively manual process, and knowing which boxes contain PHI and which don’t, and blacking them out appropriately, is essential.”  

 

Holders should refer to information from HHS for guidance on de-identifying PHI.

 

Unclaimed property compliance and audits are rarely simple. For holders in the health care space, HIPAA adds yet another compliance layer. 

 

The 2019 UPPO Annual Conference, March 24-27 in New Orleans, will include industry breakouts and an industry focus session for holders in the health care industry to discuss audit trends and compliance issues affecting them. Learn more and register today.

 

 

Tags:  audits  health care  HIPAA  unclaimed property 

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IRS Extension Provides IRA Holders an Extra Year

Posted By Administration, Thursday, November 29, 2018

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. At that time, holders were given a compliance deadline of  Jan. 1, 2019, or as soon as it becomes “reasonably practicable” to do so.

 

UPPO worked closely with the Holders Coalition and other organizations, including SIFMA and ICI, whose members are likely to be affected by this ruling to formulate a strategy for raising these issues with the IRS and other agencies, such as the SEC and FINRA, which may have conflicting opinions on the practice. Members of the Holders Coalition, including UPPO representatives Jen Borden and Dana Terry, met with the IRS in September to discuss a variety of concerns.

 

These efforts contributed to an extension of the compliance deadline from Jan. 1, 2019, to Jan. 1, 2020. On Nov. 20, 2018, the IRS issued Notice 2018-90 announcing an extension:

 

“Relief is extended to payments made before the earlier of January 1, 2020, or the date it becomes reasonably practicable to comply with the withholding and reporting requirements described in Rev. Rul. 2018-17.”

 

Revenue Ruling 2018-17 clarifies that Section 3405 of the Internal Revenue Code considers “any distribution or payment from or under an IRA… as includible in gross income,” and thus subject to tax withholding by the holder/trustee. Some holders already have held this position and routinely withhold tax and issue 1099Rs for escheated IRAs. Others do not. 

 

Although the IRS ruling provides clarity and paves the way for consistent practices, it creates challenges for securities holders, who would need to liquidate property before reporting it to the state and withholding the 10 percent federal income tax. This practice could conflict with other regulations.

 

The extension allows for an additional 12 months to seek guidance and clarification from other regulatory bodies and put practices in place to comply with the IRS requirement.

 

UPPO will continue to monitor issues related to the IRS ruling and will provide members with any relevant updates that occur. 

Tags:  1099  banks  IRS  securities 

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Five Emerging Securities Audit Trends

Posted By Administration, Thursday, November 15, 2018

Unclaimed property holders in any industry may be subject to audit, but the nuances of the audit will vary depending on the property types involved. For holders working with securities, several audit practices are becoming more common. 

 

Transfer Agent Record Requests 

Auditors examining transfer agents are increasingly requesting documentation about their issuer clients. Those records belong to the securities issuer, so the transfer agent should not provide such records without their clients’ authority.  

 

Overreaching Requests

Auditors often ask for information that is not necessary to determine which shareholder accounts could be considered unclaimed property. For example, requests for contracts with transfer agents or search firms retained to locate share owners, account open dates and shareholder Social Security numbers are not relevant to establishing whether accounts represent unclaimed property. 

 

“Holders can push back on overreaching requests,” said Freda Pepper, counsel for Reed Smith LLP. “Just because an auditor is requesting information doesn’t mean it’s relevant and that it’s appropriate to be provided.” 

 

Long Silences

After providing large amounts of information to auditors, holders may not hear from them again for months. In some cases, such “radio silence” may continue for years. Some holders may choose to “let sleeping dogs lie,” while others prefer to seek confirmation that the audit has ended. 

 

Follow-up Requests

When following up on information the holder submitted, auditors often seek: 

  • Proof of contact, including system-generated reports or screenshots.
  • Proof that contact is actually “owner generated,” demonstrating that it was sufficient to restart the dormancy period. 
  • Cash transaction history. 
  • Date of last first-class mailing, proven with a screenshot.
  • Additional escheat filing detail. Auditors often ask for unclaimed property reports that have been filed within the past two years, which is unusual since the states they are representing already have this information. Increasingly, they are also requesting a preview reports before the next escheat report deadline. 

    “From a practical and logistical standpoint, doing a one-off preview report early in the cycle may be costly or not feasible, so holders may wish to push back on such requests,” Pepper said. 

 

Death Master File Use

As a result of success in the life insurance industry, auditors are increasingly using the Social Security Administration’s Death Master File as an audit tool for securities audits as well. Comparing records to the DMF, they seek to determine holders who may be deceased and accounts that are overdue to the state as unclaimed property. States and their auditors argue that the dormancy period for unclaimed property begins upon the date of death rather than the triggers established by state law. 

 

After identifying potentially deceased property owners, auditors claim the burden shifts to the holder to prove an account is active. Holders may choose to remove Social Security numbers from information provided to the state and its auditors for this reason. However, providing only names may result in even more work. Auditors may run account owner names against the DMF, receive false positive hits for common names and insist the holder prove such account owners with matching names are still alive. 

 

The 2019 UPPO Annual Conference will feature industry-specific breakout and educational sessions that offer attendees the chance to discuss and learn about trends facing the industries in which they work. Multiple educational sessions, including Audit 101, Third-Party Auditor Differences, and Estimation Under Audits and VDA, will also focus on audit trends. Visit UPPO’s Annual Conference website for details and registration. 

Tags:  Audits  securities 

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District of Columbia Considers RUUPA Bill ​

Posted By Administration, Thursday, November 8, 2018
Updated: Wednesday, November 7, 2018

On Jan. 5, 2018, District of Columbia Council member Jack Evans introduced bill B22-0654, the district’s version of the Revised Uniform Unclaimed Property Act. The bill sat idle throughout much of the year until an Oct. 10, 2018, public hearing.  

 

If enacted, the new law would reflect a substantial overhaul of the district’s unclaimed property requirements, including changes to required due diligence practices, dormancy triggers and covered property types.

 

As with many of the bills introduced nationwide in the wake of the RUUPA’s adoption by the Uniform Law Commission, the D.C. bill contains potential issues, including several discrepancies related to the Derivative Rights Doctrine, which allows the state rights equal to, but not greater than, those of the owner.

 

For example, the bill includes gift cards under the definition of “stored-value cards,” requiring escheat of such cards that are redeemable for goods and services. Because the owner can’t redeem a gift card for money, it stands that the state shouldn’t be able to claim their cash value. The bill’s broad definition of “stored value card”  and “virtual currency” could similarly require escheat of property types not normally redeemable for cash by the owner. 

 

B22-0654 also would require holders to escheat property even if the owner’s rights to the property have expired under a contract, court order or other law. Much like with gift cards and stored value cards, this provision gives the government rights beyond those of the property owner. 

 

The bill may present other challenges as well. The American Council of Life Insurers, which supports the overall bill, has raised concerns that conflicts between regulators may arise as a result of the bill’s provision specifying that a death master file match be considered knowledge of death of an insured or annuitant.

 

With all significant unclaimed property legislation, UPPO’s Government Relations and Advocacy Committee evaluates bill language and develops a response on behalf of the organization. UPPO and GRAC will continue to monitor this legislation, and we will provide updates as appropriate. 

 

UPPO members can track the progress of this bill and all active unclaimed property legislation nationwide via our govWATCH service

 

As more and more legislatures and regulatory agencies take on issues affecting unclaimed property compliance, advocacy has become an increasingly important role for UPPO. Please take a few minutes to complete our Government Relations and Advocacy Survey to help us build our grassroots network. Responses will give us the ability to mobilize UPPO members when we are faced with legislative and regulatory challenges and opportunities. 

Tags:  Death  Derivative Rights Doctrine  District of Columbia  DMF  RUUPA 

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