Join now!   |   Subscribe   |   Pay an Invoice   |   Sign In
Unclaimed Property Focus
Blog Home All Blogs
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.

 

Search all posts for:   

 

Top tags: unclaimed property  Compliance  education  UPPO  audits  Delaware  due diligence  litigation  Advocacy  reform  Members  ULC  RUUPA  UP101  Gift Cards  legislation  UP Laws  reporting  Uniform Law Commission  fall reporting  Holders Seminar  UPPO Annual Conference  Canada  service providers  UPPO Asks  VDAs  uniform unclaimed property act  Annual Conference  california  Pennsylvania 

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 

Share |
PermalinkComments (0)
 

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 

Share |
PermalinkComments (0)
 

Tennessee Reduces Dormancy and Lookback Periods, Adds Requirements

Posted By Administration, Thursday, August 10, 2017

Among the first states to pass a version of the Revised Uniform Unclaimed Property Act this year was Tennessee. On May 25, 2017, Tennessee Gov. Bill Haslam signed H.B. 420 into law, effective July 1, 2017. The new law includes several substantial changes to the state’s unclaimed property requirements. Noteworthy provisions include:

 

New property types: Among the new property types addressed in H.B. 420 are health savings accounts (HSAs) and stored value cards. HSAs are presumed abandoned if unclaimed three years after the earlier of either the date distributions must begin to avoid tax penalty or 30 years after the account was opened. Stored value cards (other than payroll or gift cards) are presumed abandoned five years after the later of: Dec. 31 of the year in which the card was issued or funds were last deposited; the most recent indication of owner interest in the card; or a verification of the balance by or on behalf of the owner. 

 

Due diligence: Holders must perform due diligence for property valued at $50 or more. Notices must be sent to apparent owners by first-class mail between 180 days and 60 days before the unclaimed property report is filed. Owners who have consented to receive electronic communications must be sent the notice by both first-class mail and email unless the holder believes the email address is invalid. 

 

DMF matching requirement: The new law specifies that life insurers must perform searches of the death master file and comply with the Unclaimed Life Insurance Benefits Act. 

 

Dormancy periods: Most property type dormancy periods have been reduced from five years to three years under H.B. 420.

 

Audit lookback period: For audits in Tennessee, the lookback period has been reduced from 10 years to five years. 

 

Record retention: Holders are required to retain records for 10 years after the unclaimed property report was filed or was due to be filed. 

 

Promulgation of examination rules: The new law specifies that the state treasurer should develop rules for examinations, including procedures and standards for estimation, extrapolation and statistical sampling.

 

Sale of securities: H.B. 420 requires the treasurer to sell a security between eight months and one year after receiving it and giving the apparent owner notice. If the treasurer sells the security within six years, and a valid claim is filed before the six-year period expires, the owner will be entitled to receive a replacement of the security or its market value plus interest.

 

Informal conference provision: This law establishes provisions for an informal conference in situations where an examination results in a determination that a holder has failed to pay or deliver reportable property to the treasurer. It also allows for judicial review of the treasurer's decision. 

 

Exemptions: The law retains the state’s business to business and gift card exemptions. 

 

For the latest information about this and other noteworthy unclaimed property bills, visit UPPO’s govWATCH website

 

Tags:  audits  DMF  dormancy periods  due diligence  record retention  RUUPA  securities  Tennessee  unclaimed property 

Share |
PermalinkComments (0)
 

State Legislatures Reconvene, Immediately Take up Unclaimed Property Issues

Posted By Administration, Monday, January 30, 2017

Reconvening earlier this month, state legislatures are wasting no time considering new unclaimed property legislation, including language from the Revised Uniform Unclaimed Property Act. Following are summaries of several of the most noteworthy bills UPPO is tracking.

 

Arkansas

H.B. 1142 extends the presumed date of abandonment for securities from five to seven years from any of the following:

  • The date of most the recent dividend, stock split or other distribution unclaimed by the apparent owner;
  • The date of second mailing of a statement of account or other notification or communication that was returned as undeliverable, or after the holder discontinued mailings, notifications or communications to the apparent owner;
  • The date that the security holder or payee is presumed lost or unresponsive as it existed on Jan. 23, 2013.

The bill also includes new provisions requiring the security holder to liquidate the security before remitting it to the administrator. The bill was referred to a Senate Committee on Jan. 23.  

 

Delaware

Highly anticipated legislation since last summer’s Temple-Inland summary judgment and settlement, S.B. 13 adopts provisions from the 2016 Revised Uniform Unclaimed Property Act. It also adopts certain recommendations from the Delaware Unclaimed Property Task Force and makes significant changes to the state's unclaimed property reporting process and compliance initiatives.

 

These changes include reducing the look-back period for all voluntary disclosure agreements and audits to 10 report years, and creating a 10-year statute of limitations for the state to seek payment of unclaimed property due to the state. In addition, this legislation aligns the state’s record retention requirement for companies with the statute of limitations and look-back period, which mirrors laws in a majority of other states.

 

S.B. 13 also offers any company currently under audit the opportunity to convert their audit into a voluntary disclosure agreement. Since July 22, 2015, Delaware law has allowed companies to enter into a VDA before going through an audit. This change provides the VDA option for companies whose audits began before July 22, 2015, and are still in process. It also gives all companies that received a notice of examination who are currently under audit on the bill’s effective date the opportunity to engage in an expedited audit review process.

 

The bill addresses the state’s estimation practices for audits and VDAs, requiring the secretaries of finance and state to develop by July 1, 2017, regulations for estimation base periods, excluded items, aging criteria for outstanding and voided checks, and the definition of “complete and researchable records.”

 

Finally, the bill mandates that interest be assessed on any late-filed unclaimed property, as a means to incentivize voluntary compliance. The bill quickly made its way through the legislature, and was sent to the governor on Thursday, Jan. 26 for signing.

 

Nebraska

The unicameral legislature in Nebraska is considering a pair of unclaimed property bills. L.B. 137 adopts the Unclaimed Life Insurance Benefits Act. It requires an insurer to compare its policies and retained asset accounts against a death master file to identify possible matches of its insured at least a semi-annually. The bill outlines requirements in the case of a match or potential match, as well as procedures for group life insurance. A hearing is scheduled for Jan. 30.  

 

L.B. 141 adopts the Revised Uniform Unclaimed Property Act. Among relevant provisions, the bill establishes various dormancy periods and due diligence requirements. It exempts gift cards without expiration dates and fees and establishes a three-year dormancy period for returned merchandise credits and gift cards with fees. The bill also outlines the state treasurer’s responsibilities regarding unclaimed property and provides for holder reimbursement where appropriate. It provides in certain circumstances for the right of another state to take custody of unclaimed property. The bill is still awaiting to be scheduled for a committee hearing.

 

New York

S.B. 1689 prohibits gift card expiration dates and dormancy service fees unless it meets four conditions:

1.       The remaining value of the gift card is $5 or less each time the fee is assessed;

2.       The fee does not exceed $1 per month;

3.       There has been no activity on the gift card for 24 consecutive months; and

4.       The holder has the ability to reload or add value to the gift card.

 

The bill also requires retailers to redeem gift certificates of $10 or less for cash at the consumer's request. The bill was referred to the consumer protection committee.

 

Oregon

S.B. 113 requires the provider of goods and services identified on a gift card to transfer to the Department of State Lands the remaining balance of any gift card after five years of inactivity from the date of the last purchase using that gift card. The bill is currently in committee.

 

South Dakota

S.B. 34 revises provisions related to securities held as unclaimed property. The bill requires the state treasurer to sell all stocks, bonds and other negotiable instruments within 90 days of confirmed receipt, unless the property is on an open claim. The bill was referred to a House Committee on Jan. 20.

 

Utah

H.B. 42 makes comprehensive revisions to the state’s insurance law. Among other changes, the bill amends definitions under the Unclaimed Life Insurance and Annuity Benefits Act by removing the definition of “knowledge of death.” The bill saw its third hearing in the House on Jan. 25.

 

UPPO continues to monitor all of the pertinent bills affecting members. For the latest information about these and other noteworthy unclaimed property bills, visit UPPO’s govWATCH website.

 

Tags:  audits  death master file  insurance  RUUPA  securities  unclaimed property 

Share |
PermalinkComments (0)
 

Hot topics in securities audits

Posted By Administration, Tuesday, March 1, 2016

Every industry with potential unclaimed property liabilities has its own unique nuances. In the securities world, the number of entities involved in transactions, and the volume of data required to track accounts and to comply with applicable regulations present some interesting challenges, particularly during audit examinations.

 

As part of the recent Escheatment Requirements in the Securities Industry webinar, presenters Matt Hedstrom, partner from Alston & Bird, LLP, and Michael Unger, unclaimed property manager from Crowe Horwath LLP discussed several hot topics surrounding today’s unclaimed property audits in the securities industry.

 

Proper Target

Several financial institutions may be subject to unclaimed property exams. They include introducing brokers, clearing brokers, transfer agents, issuers, mutual fund complexes, and custodians. The holder is the entity required to comply and remit unclaimed property, and is typically responsible for any liabilities for not doing so. In theory, identifying the proper audit target should be simple based on who the holder is under state law. However, in complex financial transactions, multiple companies may fit the definition of “holder.”

 

In instances when a financial company offers broker accounts, it may be straightforward—the company possessing the assets is the holder. But in the context of an introducing broker and a clearing broker, which is the proper entity? It’s unclear.

 

“Unfortunately, the states haven’t definitively said which entity they believe to be the holder of those accounts when you have two or more entities or two or more brokers involved,” Hedstrom says.

 

Another consideration for identifying the proper exam target is which entity has the best access to information. Often, the company holding the account is not the same company that has the relationship with the owner. The entity reporting the property may take instructions from an unrelated company. Is the broker that maintains the client relationship and dictates when property should be escheated responsible, or is the escheating broker responsible?

 

“That’s where we have challenges,” Hedstrom says. “This is very different from traditional unclaimed property exams that focus on accounts payable, payroll and accounts receivable, all of which are often held by one entity. What we are seeing is that multiple parties are being audited and some that are ‘holding’ the exact same property. How do states intend to deal with that? They may not even know at this point.”

 

Closing

One of the challenges with closing a third-party audit is whether the exam and its impact are truly complete. In the context of a general ledger audit, the end is generally clear. The company will pay an agreed upon amount of money, send first-priority liabilities to the states and be done with it.

 

With escheatment of securities, there’s the trailing risk related to owners, who may sue after property has been escheated and liquidated by the states. Thus, even when the audit process has ended, liability issues may still arise.

 

Tactics

Third-party firms conducting unclaimed property audits often use data-intensive and voluminous review tactics. It may be not be intentional or for lack of need. However, compiling data related to owner activity for potentially millions of accounts can be difficult. As a result of the large amount of information going back and forth between the holder and the auditor, audits can easily span several years.

 

If requested data isn’t already used as part of routine compliance tracking, the information may not be in a company’s system. Even if it is, it may not be readily available. Companies undergoing examination are constantly pulling additional information to clear certain accounts, remediate certain accounts or defend their data.

 

Because some contract auditors use a specific methodology that works for them, holders may be able to prepare for their requests by becoming familiar with their auditor’s usual methods.

 

“By doing so, you avoid getting behind the 8-ball because of the volumes of data you have to analyze,” Unger says. “You can establish a systematic way for analyzing data when it comes in rather than doing it reactively. Then you can quickly review some of those accounts rather than being up against the clock. So the biggest strategy I see is preparing in advance for what’s coming and getting in front of it.”

 

Pushing Back

Challenging the scope of an audit is difficult. Unclaimed property laws allow the states to review any records that are relevant to determine whether particular items of property are unclaimed or subject to escheatment. Even if information requests seem broad, if the data pertains to whether an account owner is active, it probably falls within the scope of the statute authorizing the review. One way to refine the scope of an audit is by refocusing requests.

 

“If you look at a request and know there’s a way to scope it down to get at what the auditors really want to see, and they’re asking for information that’s overly broad, that’s a best practice,” Hedstrom says. “It helps focus the audit, moves it forward and limits the information that you would otherwise have to produce. In the grand scheme of things, limiting information, both from a data privacy perspective and an audit management perspective, is ideal.”

 

Some examples of data that audit firms may agree isn’t necessary include active stock plan service accounts or stock option accounts, employee accounts, zero-balance accounts, and closed accounts.

 

The Future

Unclaimed property issues continue to evolve at a rapid pace. Regulatory changes, litigation and the Uniform Law Commission’s ongoing work to revise the Uniform Unclaimed Property Act will likely drive even more changes in the coming months and years. Whether they will affect the securities industry’s audit challenges, and to what extent, remains to be seen.

 

To keep up with the latest noteworthy litigation, regulatory and legislative activity, UPPO members can access the govWATCH tracking service, and continue to monitor the UPPO blog for additional developments.

Tags:  audits  securities  unclaimed property 

Share |
PermalinkComments (0)
 
Page 1 of 2
1  |  2
Membership Software Powered by YourMembership  ::  Legal