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Unclaimed Property Focus
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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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Certificate Program Offers a Unique Unclaimed Property Professional Development Opportunity

Posted By Contribution from Becky Stephens, 2018/19 UPPO midwestern vice president, Thursday, July 5, 2018

On July 11, 2018, the UPPO Certificate Program will open for enrollment. For the first time, the program includes two tiers – basic and intermediate. 

 

When then-president Karen Anderson asked me at the UPPO Annual Conference in March 2013 to chair a task force that would conduct research, analyze the feasibility and costs, and prepare a formal recommendation to the UPPO Board of Directors regarding certificate programs, I had no idea how well this educational offering would be received by UPPO members. Late in 2013, the Education Exploratory Task Force made its recommendations to the UPPO Board of Directors, which heartily endorsed and approved the proposal. The UPPO Certificate Program was born.

 

UPPO members met the initial offering of the basic certificate tier with great enthusiasm, and all seats sold out within 15 minutes of registration opening. Since the program’s inception, more than 135 participants have successfully completed the basic certificate program. Congratulations to all who have participated, completed the program and received their certificates. 

 

The next logical step was creating the curriculum and courses to be offered for the intermediate certificate tier, the next level of education for individuals who have completed the basic certificate program. To be eligible for the intermediate certificate, you must have successfully completed the basic certificate program. The Certificate Program Subcommittee, a roster of seasoned unclaimed property professionals who have dedicated many years to understanding the complexity of unclaimed property regulations, has been hard at work developing this next phase.

 

Below are seven reasons to participate in either the basic or intermediate tiers. Perhaps one of them will help to persuade your employer to enroll you in the certificate program.

  1. Be acknowledged internally for your expertise. What we do as unclaimed property professionals isn’t always understood by our employers, but the meaning of being a certificate holder within your profession is understood. Universally, holding a certificate means that you hold a certain level of expertise and had to complete quantifiable goals to receive it. 
  2. Become more effective and confident in your responsibilities. You’ll learn the fundamentals of compliance at a deeper level than you could in one educational session. 
  3. Be one of the first in your organization to hang the unclaimed property certificate above your desk. Whether it’s the basic tier or the intermediate tier, this is an achievement of which to be proud. (My certificate is on display for everyone to see when they visit my desk.)
  4. For managers with new employees, use this as a long-term training solution for your newer employees. It will teach and reteach topics throughout the year – to relieve you from providing that continued education new professionals demand and need. 
  5. Grow as a professional. It’s always good to challenge yourself and learn something new. 
  6. Earn CPE while you learn. For every live webinar and in-person educational session you attend at the Annual Conference through the certificate program, you’ll be eligible to earn one CPE credit. 
  7. Be able to provide feedback and improve the program for future classes of the program. The program has been reviewed and tested, and we think it’s pretty awesome, but we’ll want your honest opinions about how to make this better for future participants. 
For more information, visit the certificate program web page, and watch for registration to open on July 11 at noon CDT. 

Tags:  certificate program  education  professional development 

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UPPO Advocacy Update: June 2018

Posted By Administration, Thursday, June 28, 2018

To help members remain aware of UPPO’s advocacy activities, the Unclaimed Property Focus blog recently began including a monthly Advocacy Update. Following are June 2018 activities and trends from UPPO’s Government Relations and Advocacy Committee (GRAC).

 

IRS Revenue Ruling

Most state legislatures are currently in recess. However, GRAC’s work continues. The biggest issue arising in June was the IRS Revenue Ruling stating that traditional IRA holders must withhold 10 percent tax and issue a 1099-R when reporting unclaimed property to the states. This ruling appears to be written with banks in mind, but it presents significant issues for the securities industry. UPPO is working with the Holders Coalition and other organizations 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. 

 

Priority Issue Workgroups

The GRAC Priority Issue Workgroups continue refining their messages and strategies. The Record Retention, SOL and Estimation group, for example, is reviewing UPPO’s positions in these areas as established during development of the Revised Uniform Unclaimed Property Act to ensure they remain relevant. 

 

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:  1099  IRS 

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IRS Ruling Clarifies Reported Unclaimed IRAs are Taxable

Posted By Administration, Monday, June 18, 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. Holders are expected to comply by Jan. 1, 2019, or as soon as it becomes “reasonably practicable” to do so.

 

“Before this ruling, the obligations regarding tax withholding for reported IRAs were unclear,” said Freda Pepper, counsel with Reed Smith’s State Tax Group. “Often, when reporting an IRA to the state, holders don’t liquidate it but rather transfer custodianship of the IRA to the state. There has been confusion among holders and the states whether that was a taxable event.”

 

The ruling 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. 

 

“From a banking perspective, some are already doing this and others will need to come into line with it,” said Tom Powers, business operations analyst at U.S. Bank. “Holders in the securities industry will definitely be affected by this ruling. Their distributions aren’t as clean cut as traditional banking products because they’re dealing with full shares and fractional shares. The way states want shares reported to them makes it more cumbersome for them. The ruling also covers individual retirement annuities, which are often offered by insurance holders, so they will be affected as well.”

 

Although the IRS ruling provides clarity and paves the way for consistent practices, it creates challenges for securities holders.

 

“With securities, there has to be some sort of liquidation of the property before it is reported to the state in order to withhold the 10 percent federal income tax,” Pepper said. “This could be logistically difficult. Should they try to determine the value equal to 10 percent of the IRA’s funds and liquidate just that? Or should they liquidate the entire value, which could have other tax implications for the owner?”

 

States also face some issues resulting from the IRS revenue ruling. Some have taken conflicting positions on whether reported unclaimed IRAs require withholding. For example, Pennsylvania changed its law in 2016, making unclaimed IRAs reportable after three years of inactivity regardless of the owner’s age. Generally, an early distribution would carry a tax penalty. However, the state took the position that transfer of custodianship would not result in a taxable event. The state will need to revisit this position in light of the conflicting ruling from the IRS. 

 

Because IRS revenue rulings typically address a very specific scenario presented to them for clarification, this specific ruling covers only traditional IRAs. However, there may be implications for other retirement products as well, according to Powers.

 

“With a Roth, you can take out your principal whenever you want because you’ve already paid taxes on that, but you haven’t been taxed on the earnings,” he said. “Dividends and interest become taxable when you retire. When transferring a Roth to the state, that taxable amount gets transferred. If there are tax implications for traditional IRAs, there almost have to be tax implications for Roth IRAs as well.” 

 

While holders and states have some issues to grapple with as a result of the IRS ruling, it should help owners. 

 

“Ultimately, this should get the property to the rightful owner quicker,” Pepper said. “Once a 1099 is issued, they will become aware the IRA has been escheated, allowing them to question the transaction and claim their property.”   

 

Tags:  1099  IRS 

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UPPO Advocacy Update: May 2018

Posted By Administration, Thursday, June 7, 2018

 

To help members remain aware of UPPO’s advocacy activities, the Unclaimed Property Focus blog recently began including a monthly Advocacy Update when state legislatures are active. Following are May 2018 activities and trends from UPPO’s Government Relations and Advocacy Committee (GRAC).

 

Priority Issue Workgroups

After establishing its top five priority issues this spring, GRAC formed workgroups to establish goals for each priority issue. All of the workgroups have discussed the need for focused outreach to educate key audiences – specifically legislators and unclaimed property administrators – about these issues and UPPO’s position on them. As their work continues, they will identify the messages and methods for most effectively discussing these issues, as well as materials the UPPO staff can develop to support these efforts. 

 

Individual workgroups have also begun developing strategies. For example, the workgroup for record retention, statutes of limitations and use of estimation is identifying states with the most troublesome statute language related to these areas. This step will help ensure a focused approach where change have the greatest impact.

 

Noteworthy Legislation

Although most state legislators are not currently in session, there have been a couple recent noteworthy developments:

  • In Pennsylvania, H.B. 2167 and companion bill S.B. 1058 provide that securities, such as cash dividend accounts, dividend investment plan accounts and non-dividend paying accounts, would not be reportable as unclaimed property unless first class mail to the owner has been returned as undeliverable and there has been no account activity for three years after the holder has been unable to reach the owner. UPPO supports this shift to an RPO requirement. The bills are currently moving through the Pennsylvania legislature’s committees and appear to have a strong chance of passage.  
  • Colorado S.B. 240, the state’s bill based on the Revised Uniform Unclaimed Property Act, has been indefinitely postponed. 

 

UPPO members can track the progress of these bills 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.

 

 

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Thinking Outside the Unclaimed Property Box: Other Implications Affecting Unclaimed Property

Posted By Contribution from Jennifer Waryjas, 2018/19 UPPO secretary, Thursday, May 31, 2018

As unclaimed property holders become more knowledgeable about their compliance responsibilities, they may risk exposure in tangentially related areas if their focus is too narrow. Holders may be completely compliant with unclaimed property requirements and get blindsided by a legal violation in another area related to their unclaimed property practices. For this reason, a well-rounded approach to unclaimed property compliance that goes beyond just state unclaimed property statutes is important. Following are several risk areas worth considering. 

 

Mergers and Acquisitions

There’s a common misconception with mergers and acquisitions that all unclaimed property obligations flow through to the purchaser if it’s a stock deal, and none of it flows through if it’s an asset deal. However, that is way too broad of a generalization. 

 

When a holder has become aware that a merger or acquisition has occurred, the holder must analyze the specific terms of the agreement to know what’s being purchased and what’s being retained – and whether there’s a provision addressing unclaimed property – is essential. 

 

There’s another misconception that unclaimed property is covered under the tax provisions in an M&A document. Unclaimed property is not a tax and is not included in the definition of tax in the standard definition of tax in most M&A agreements. Unless the deal team knows what unclaimed property is and why it matters, they’re not likely to include provisions responsive to potential unclaimed property obligations in the agreement. Likewise, unless the unclaimed property team understands the deal itself, it may make false generalizations and improperly take into account the effect of that a merger or acquisition has on your unclaimed property reporting obligations. 

 

Health Insurance Portability and Accountability Act

HIPAA is not typically associated with unclaimed property. However, for holders in the medical field or that work with the medical field, it’s important to understand HIPAA implications. HIPAA rules define what information can and cannot be released. Companies in the healthcare market deal with sensitive information. Patients often don’t want information about their health conditions shared without their consent. Unclaimed property holders need to take this into consideration. For example, when escheating uncashed checks to the state, question whether the information is revealing something that the property owner wouldn’t want made public. 

 

When dealing with an audit or a VDA, handling sensitive information can be even more complex. Auditors or VDA administrators may ask for information that, when shared, could violate HIPAA provisions. For example, a medical device provider specializing in an area that would be easy to associate with a specific medical condition could inadvertently release medical information when sharing requested information. Great care needs to be taken to ensure compliance not only with unclaimed property statutes, but also with HIPAA. 

 

Probate Law

When managing the unclaimed property treatment of securities, does the holder or third party administrator understand the implications of probate law?  Relatives of deceased property owners may contact transfer agents to let them know of the death and to inquire about transfer of the shares. Auditors may require that property be escheated, without delving into the legal implications of the contact with a related party under the general presumption that the owner has not made sufficient contact. However, under the relevant probate law, that person may in fact be the heir. Therefore, the holder or third party administrator should identify the relevant probate law to determine if the auditor’s request is proper, or if they should request to provide adequate time for resolution of the probate process before escheating those shares. 

 

False Claims Act

Under the False Claims Act, whistleblowers report a finding to the state and are rewarded for raising an issue about which the state was otherwise unaware. In the unclaimed property arena, False Claims Act cases take what could be a normal audit and transcend it into treble damages and attorney fees. 

 

When hit with a False Claims Act case, information not under privilege becomes public. Every email is traceable, every document becomes potentially discoverable. While a holder is unlikely to anticipate litigation, they can decrease risk of disclosing information if they have taken the proper steps to ensure an internal or third-party unclaimed property analysis is done under privilege. 

 

Nondisclosure Agreements

Information shared with an auditor during an unclaimed property audit could become discoverable in an unrelated lawsuit filed after the audit has been completed. This occurred in the case of City of Sterling Heights General Employees Retirement System vs. Prudential Financial, in which plaintiff shareholders subpoenaed the auditor for audit documentation. 

 

It’s important to make sure when signing nondisclosure agreements with an auditor conducting an examination that they include provisions outlining how long the auditor keeps nonpublic information and work papers, in what form and what they are doing with them when the audit is complete.

 

Taking a comprehensive view of unclaimed property compliance beyond only state unclaimed property statutes reduces risk and helps avoid costly surprises. Awareness of these areas that are especially prone to cause potential headaches is a significant step toward creating a truly well-rounded compliance program. 

Tags:  False Claims Act  HIPAA  mergers  probate law 

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