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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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Advocacy Update

Posted By Administration, Thursday, July 2, 2020

To help members remain aware of UPPO’s advocacy activities, the Unclaimed Property Focus blog presents the 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).

 

Retirement Account Dormancy

With the COVID-19 pandemic disrupting so many areas of our lives in the past few months, it’s little surprise that it has led to complications related to unclaimed property. Passed last year, the SECURE Act changed the required minimum distribution date for individual retirement accounts from 70.5 to 72. The CARES Act, designed to ease the economic impact of the pandemic, waives the required minimum distribution for 2020. Because the required minimum distribution date may begin the unclaimed property dormancy period, holders are affected. GRAC is currently developing questions for holders to use when working with states to respond appropriately to this issue.

 

Certified Mail

Because some states have included language in their RUUPA bills requiring certified mail to be used for due diligence letters, GRAC is developing a position paper for UPPO expressing its objection to a certified mail requirement. However, should language be included in a RUUPA bill, UPPO’s position is to specify certified mail receipt cards be accepted as a form of contact, regardless of who signed the cards.

 

Savings Account Language

GRAC is also drafting recommended language to provide states that introduce RUUPA bills using incorrect language to address the treatment of Demand Deposit accounts versus standard savings accounts, which has become a trend.

 

Unclaimed Savings Bonds

Over the past several years, states have battled with the U.S. Treasury over unredeemed U.S. savings bonds. Kansas State Treasurer Jake LaTurner led the state charge in the courts, arguing that proceeds from matured, unredeemed bonds should be turned over to the states. Last year, a federal appeals court ruled the Treasury is not required to do so. The plaintiffs are asking the U.S. Supreme Court to review the case. GRAC is reviewing the case to evaluate whether it is appropriate for UPPO to draft an amicus brief, taking a position on this issue.

 

Positive Legislation

Ohio HB 270, the Unclaimed Funds Reform Act, is moving quickly, having passed the House and under consideration in the Senate. Among other things, the bill would clarify the treatment of auto-renewing certificates of deposit.

 

Tennessee SB 1634 was signed into law by the governor on June 22, 2020. The bill increases the time before the state treasurer liquidates securities from “eight months to a year” to “32 to 36 months.” 

 

Reporting in California

California normally required unclaimed property reports to be filed via CD and paperwork. The state is now allowing holders to send reports via FTP. However, to take advantage of this process, holders first need to request permission. Contact the California State Controller’s Office for details.

Tags:  Advocacy  dormancy  due diligence  IRAs  unclaimed property 

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Federal SECURE Act Affects Unclaimed Retirement Accounts

Posted By Administration, Thursday, January 23, 2020

Included in a federal appropriations act signed into law in December 2019 and effective on Jan. 1, 2020, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 makes several changes related to tax-advantaged retirement accounts. Some of these changes affect the treatment of such accounts as unclaimed property.

 

Among the changes is a shift in the age at which retirement plan participants must take required minimum distributions (RMDs). For anyone not reaching the age of 701/2 by the end of 2019, the RMD age shifts from 701/2 to 72. This change is noteworthy because unclaimed property holders use the RMD age to calculate dormancy for retirement accounts.   

 

Under the SECURE Act change, unclaimed property holders need to consider when the account owner turned 701/– before or after Dec. 31, 2019. However, while some state unclaimed property statutes refer to the RMD age without specifying what that age is, others specifically refer to 701/2. Until such states revise their statutes, their laws conflict with the new federal law, which may cause confusion over proper treatment of such accounts.

 

The SECURE Act also eliminates the 701/2 maximum age for deduction of IRA contributions. This change may encourage IRA owners to contribute to their plans later in life, reducing the number of accounts that become abandoned due to lack of activity or contact with the holder. 

 

Holders may also see a reduction in inactive IRAs from a change affecting IRA distribution upon the account owner’s death. Under the act, inherited IRAs must be fully distributed within 10 years of the owner’s death with exceptions for certain qualifying beneficiaries, including spouses and minors. 

 

IRAs have been a hot topic in the unclaimed property world in recent months. In addition to the SECURE Act changes, the Internal Revenue Service’s Revenue Ruling 2018-17 became effective on Jan. 1, 2020. This clarification from the IRS affects tax withholdings from IRAs and how such withholdings should be reported to the states. NAUPA recently provided guidance to help holders with this change.  

 

These changes will likely be among the topics attendees discuss during the Banking and FinTech Industry Focus session and Industry Breakouts at the upcoming UPPO Annual Conference in Tucson, Arizona. Learn more and register by Jan. 27, 2020, for the best rate. 

Tags:  IRAs  SECURE Act 

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NAUPA Provides Additional Guidance for Reporting IRAs and Tax Withholding

Posted By Administration, Thursday, January 16, 2020

The National Association of Unclaimed Property Administrators has provided additional guidance regarding reporting of unclaimed IRAs and their tax withholdings within the NAUPA II format under IRS Revenue Ruling 2018-17. 

 

As UPPO previously reported, NAUPA issued preliminary guidance to holders in November 2019. It advised holders to use the NAUPA Standard Deduction and Withholding code “TW” in the PROP-DEDUCTION-TYPE field of the Property record to represent “Income Tax Withheld.” In addition:

  • The amount of federal tax withheld should be stored in the PROP-DEDUCTION-AMOUNT field. 
  • The value of the property before the deduction should be stored in the PROP-AMOUNT-REPORTED field.
  • The amount remitted to the state after federal tax withholding should be stored in the PROP-AMOUNT-REMITTED field. 

UPPO questioned how holders should handle situations when they have multiple deductions, as the PROP-DEDUCTION-AMOUNT field only accommodates one. For example, a holder may have a deduction for mailing costs and the income tax withheld. UPPO also asked NAUPA to clarify whether federal and state tax withheld would be combined and recorded as one amount within the NAUPA file. 

 

On Dec. 5, 2019, NAUPA issued follow-up guidance to include, “In the event of multiple deductions, the Tax Withholding code should take priority,” and the state and federal withholdings should be totaled for inclusion. 

 

In response, UPPO requested additional clarification regarding how holders should populate the file when the property is a security and part of that security must be liquidated to pay the 10% tax withholding, as there is only one property record on the file. 

 

NAUPA responded on Dec. 17, 2019, with the following example of escheating 100 shares with each share worth $1.

 

PROP-AMOUNT-REPORTED              10.00

PROP-DEDUCTION-TYPE                   TW

PROP-DEDUCTION-AMOUNT             10.00

PROP-AMOUNT-REMITTED                0.00

 

PROP-NUMBER-OF-SHARES             100.0000

PROP-DEL-SHARES                            10.0000

PROP-REM-SHARES                           90.0000

 

The description field will indicate the sale:

PROP-DESCRIPTION                   PARTIAL SALE OF SECURITIES FOR TAX WITHHOLDINGS

 

NAUPA has stated that typically most states instruct holders to use separate properties for cash and securities, but this would be a valid reason for an exception.

 

Some holders have expressed concerns that not all states will abide by the guidance. Although NAUPA cannot regulate whether states adopt its guidance, it is educating them on the issue and the benefits of doing so. 

Tags:  IRAs  IRS  NAUPA  taxes 

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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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Practical Insights and Deeper Dives Highlight Annual Conference Sessions

Posted By Administration, Wednesday, January 9, 2019

 

 

Unclaimed property continues to provide a maze of compliance challenges for the professionals charged with managing their companies’ escheatment responsibilities. This year’s UPPO Annual Conference agenda offers a wide variety of sessions designed to help navigate that maze and keep up with the latest trends.

 

Managing Relationships

If your company is using third-party agents for employee benefits, payroll, equity or other services, understanding the roles of each party and ensuring everyone is properly fulfilling their responsibilities is essential to the unclaimed property reporting process. The Managing Your Third-Party Administrator session will offer tips for managing this important relationship.

 

The Bridging the Gap session looks at another key relationship – the one between holders and the states. This session will help attendees gain insight into building positive relationships with state administrators and maintaining a compliance program that is mutually beneficial to the holder, the state and property owners.

 

Emerging Property and Account Types

Unclaimed property compliance involves much more than uncashed payroll checks and customer credits. Dive into the specific requirements and considerations for unique account types in the unclaimed property process during the Unique Accounts with Unique Requirements session. Attendees with explore developments related to traditional and nontraditional retirement/IRA accounts, beneficiary accounts, HSAs and FSAs, and the effects of linking activity between customer accounts. 

 

Another rapidly evolving area of unclaimed property compliance is the world of virtual currencies. The Virtual Reality, Real Unclaimed Property session will look at issues arising from virtual currencies, blockchain technologies and modern incentive programs. Attendees will get insight into regulatory changes and practical considerations related to cryptocurrencies, virtual wallets and customer loyalty programs. 

 

Audits and VDAs

Always hot topics, unclaimed property audits and voluntary disclosure agreements will take center stage in several sessions. 

 

Unclaimed property professionals who haven’t yet been fully exposed to the audit process can gain an understanding of the concepts, timelines and expectations at the Audit 101 session. This introduction to audits will explore the scope and methodologies used by states and their third-party auditors. 

 

Holders under examination or participating in a VDA may be subject to estimated liability. The Estimation Under Audits and VDAs session will explore estimation methodologies and considerations and examine how states differ in their estimation practices. 

 

With so many companies incorporated in Delaware, that state spends a lot of time in the unclaimed property spotlight, but other states can’t be neglected. The Non-Delaware Voluntary Compliance session will look at VDAs in other states and when an informal approach may be more beneficial than a formal VDA. 

 

Not all third-party auditors were created alike. In fact, their processes and procedures vary greatly. The Third-Party Auditor Differences session will walk through the many different document requests that holders can expect throughout the audit process and will examine conflicting auditor requests when under audit by multiple states using different firms. 

 

View complete details about educational sessions and other 2019 UPPO Annual Conference events. The early-bird registration deadline is Jan. 28, so register today for the best rate.

 

 

 

 

 

Tags:  audits  cryptocurrency  IRAs  state administrators  TPAs  UPPO Annual Conference  VDAs  virtual currency 

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