Northeast & Mid-Atlantic- Unclaimed Property Update & Pending Legislation

Transcription

1 Northeast & Mid-Atlantic- Unclaimed Property Update & Pending Legislation September 27, 2016 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO KNOWLEDGE BDO network Webinar of independent Series Northeast member firms. & Mid- Atlantic- Unclaimed Property Update & Pending Page 1

2 CPE AND SUPPORT CPE Participation Requirements To receive CPE credit for this webcast: You ll need to actively participate throughout the program. Be responsive to at least 75% of the participation pop-ups. Please refer the CPE & Support Handout in the Handouts section for more information about group participation and CPE certificates. Q&A: Submit all questions using the Q&A feature on the lower right corner of the screen. At the end of the presentation, the presenter(s) will review and answer all questions submitted. Technical Support: If you should have technical issues, please contact LearnLive: Click on the Live Chat icon under the Support tab, OR call: Page 2

3 INTRODUCTORY COMMENTS Page 3

4 INTRODUCTORY COMMENTS It pays to be compliant with unclaimed property reporting: States view unclaimed property as a source of revenue and, as such, aggressively audit unclaimed property. - In 2015, Delaware reported over $500 million in revenue from unclaimed property, which was its 3 rd largest source of revenue behind corporation and personal income taxes. - In 2013, Delaware reported it had 300 unclaimed property audits underway (and it only resolves approx. 50 each year). Unclaimed property audits can last many years and involve multiple states at the same time, and can be a very expensive process for a holder as a result. - In 2010, CA Technologies paid Delaware $17.6 million in an out-of-court settlement made five years after the state began its audit. - In 2012, Staples paid almost $9 million to Delaware in an audit that began approximately 7 years earlier. There are ways to mitigate exposure for a holder who is not unclaimed property compliant. Page 4

5 Agenda 1. Unclaimed Property Overview 2. Unclaimed Property Extrapolation 3. Mitigation Strategies/Best Practices 4. Compliance 5. Northeast & Mid-Atlantic- State Summary 6. Recent State Developments 7. Legal Update 8. Questions Page 5

6 Unclaimed Property Overview Page 6

7 Unclaimed Property Introduction: General Information All 50 states and the District of Columbia have enacted unclaimed property laws. The purpose of unclaimed property laws is to ensure the protection of abandoned property until the rightful owner is located. Moreover, states use any derivative funds earned on such property for the public good. Unclaimed property is not a tax. States actively pursue unclaimed property as an additional source of revenue for the state, which avoids raising taxes. States unclaimed property laws apply to all entity types, including: Corporations S Corporations Partnerships Limited Liability Companies Page 7

8 Unclaimed Property Introduction: What is Unclaimed Property? Generally intangible personal property for which there has been no owner activity for a specified period of time ( dormancy period ). Examples of unclaimed property: Uncashed payroll or commission checks Uncashed payable/vendor checks Gift certificates/gift cards Customer merchandise credits, layaways, deposits, refunds or rebates Overpayments/unidentified remittances Suspense accounts Unused/outstanding benefits (non-erisa) GR/IR (Goods received, not invoiced) Miscellaneous income/bad debt expense accounts Page 8

9 Unclaimed Property Introduction: Where Do I Report Unclaimed Property? The Supreme Court of the United States in Texas v. New Jersey, established the following unclaimed property sourcing rule: First, to the state of the rightful owner s last known address, if known, or Second, to the state of the holder s incorporation (commercial domicile for unincorporated entities). Priority rules in Texas v. New Jersey were upheld in the subsequent cases Pennsylvania v. New York (escheat of money orders) and Delaware v. New York (unclaimed dividends and interest). Although not sanctioned by the Court, some states have adopted a transactional or throwback rule, which provides that if both the state of the owner s last known address and the state of the holder s incorporation decline or fail to exercise jurisdiction over the unclaimed property, then the state in which the transactions giving rise to such property occurred has the right to claim the property. Page 9

10 Dormancy Periods Dormancy Period : A statutorily prescribed period that begins from the date of creation of the property type (e.g., check issuance date) and ends after the passage of a certain number of years (typically 1-5 years). Property becomes presumed abandoned when it has remained unclaimed during the statutory dormancy period. State Wages (years) A/R Credit Balances (years) Third Party Dividends (years) Gift Cards (years) A/P Checks (years) All other property (years) PA No NY No NJ No DE No B2B Page 10

11 Audit Process 3-7 years Multi-state Decreased decision making, increased company resources Third party contingency fee auditors In-depth review of books and records Potential estimation back to date of incorporation (DE 1991) Page 11

12 Who are these Third-party Auditing Firms? # Firm Comments 1 Kelmar Associates, LLC Leading audit firm for DE and certain other states 2 UPCH Owned by Xerox; maintain contracts with over 25 states 3 Audit Services US Maintain contracts with 46 states 4 Verus Financial LLC Leader in Life Insurance audits 5 Treasury Services Group LLC (TSG) Bought Bankrupt APEX; newer firm Discovery Audit Services LLC Newer Firm outside LA; Performing audits for LA since TL2Q LLC (f/k/a Hertz Herson LLP) Newer Firm, started in Innovative Advocates Group, Inc. Newer Firm, started in 2013 Page 12

13 Unclaimed Property Extrapolation Page 13

14 Unclaimed Property Extrapolation Many states, including Delaware, use extrapolation techniques to establish a historic liability, at times dating back to 1986, in the event all records requested are not available and/or complete. The determination of whether or not to extrapolate may depend on factors such as: Historical unclaimed property reporting practices Filing history Materiality of errors found for periods where records were reviewed Record availability and reliability by property type Page 14

15 Exposure Quantification Accounts Payable Extrapolation Page 15

16 Exposure Quantification Payroll Extrapolation Page 16

17 Exposure Quantification Accounts Receivable Extrapolation If all sales are on account, the following extrapolation can be used: Holder should review credits written off (e.g. to miscellaneous income/expense account) to any amounts of bad debt as this is a viable position to offset net credits that is often overlooked. 1 In many cases the net credits were written off to miscellaneous income, allowance for doubtful accounts, or bad debt expense and documentation to prove it is not escheatable is BDO unavailable. KNOWLEDGE Webinar Series Northeast & Mid- Atlantic- Unclaimed Property Update & Pending Legislation Page 17

18 Exposure Quantification Total Unclaimed Property Liability (ALL STATES) for Base Period (a) Base Period = Total Sales (1120) for Base Period (b) Escheat Percentage (c) (Unclaimed Property Liability(a)/Total Sales (b)) Escheat Percentage(c) * Total Sales in Non Base Period(d) = Total Projected Liability(e) Projection Years Total Projected Liability(e) + Address Property(f) = Total Liability Owed (Projection and Address) Page 18

19 Example of the Impact of Extrapolation Year Sales Total Unremdiated Unclaimed Property Unremediated Unclaimed Property w/ Delaware Address Extrapolated Liability Sourced to Delaware Total Delaware Assessment ,000, ,000 12,500 12, ,000, ,000 5,500 Use 5, ,000, ,000 11,200 Actual 11, ,000,000 90,000 8,300 Data 8, ,000, ,000 4,500 4, ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , , ,000, , ,182 Actuals 10, 725,000,000 1,420,000 42,000 2,968,905 3,010,905 Error Rate % Application of Penalties and Interest 3,763,631 Total Delaware Assessment 6,774,536 Documents Unavailable Documents Unavailable Page 19

20 Mitigation Strategies/Best Practices Page 20

21 Ways to Mitigate Unclaimed Property Exposure Voluntary Disclosure Agreements All property types (AP, PR, AR) Limited scope of review Brings company into compliance Limited reach-back Compliance Execute strong annual unclaimed property filings and due diligence compliance Policy and Procedures Develop and implement firm-wide process to help mitigate future risk Evaluate M&A Activity Evaluate System conversions and banking relationship changes Feasibility Review Review to address the scope of your unclaimed property exposure and internal control risks Page 21

22 Best Practices Best practices general across all industries and property types: Establish consistent and comprehensive filing history Be informed understand how unclaimed property liabilities are calculated and how this can impact your organization Understand the priority rules and make informed/strategic decisions to mitigate exposure Develop comprehensive unclaimed property polices and procedures across all property types/entities Designate representatives within each process group to oversee reporting process and ensure UP is dealt with accordingly Page 22

23 Compliance Page 23

24 NE & Mid-Atlantic Compliance Summary State Reporting Due Date Reporting Period Due Diligence Threshold Dormancy Range Maine 1 Nov 7/1 6/30 $ Yes New Hampshire 1 Nov 7/1 6/30 $ Yes Exemptions Notes Massachusetts 1 Nov 7/1 6/30 $ Yes Connecticut 31 Mar 1/1 12/31 No threshold specified 1 5 Yes Gift Certificates New York 10 Mar 1/1 12/31 $ No Gift Cards: Exempt if sold after December 31, 2011 and company issues less than $250,000 in gift obligations/year, otherwise amount unclaimed equals 60% of the card's face value Gift Certificates issued for store merchandise credit are exempt from escheatment if < $100. B2B exemption is a deferral for A/R and A/P ongoing business relationship required for exemption. Gift Cards. New Jersey 1 Nov 7/1 6/30 $ Pennsylvania 15 Apr 1/1 12/31 No due diligence required 2 3 Yes Maryland 31 Oct 7/1 6/30 $ Yes Washington, 1 Nov 7/1 6/30 $ No No If the gift certificate does not include an expiration date and no fees are charged, it is deemed a qualified gift certificate and escheatment does not apply. B2B Exemptions cover A/R, A/P and Rebates to Individuals. Gift certificates are exempt. Virginia 1 Nov 7/1 6/30 $ Yes B2B Exemptions cover A/R and A/P. Gift Cards as long as they are redeemable. West Virginia 1 Nov 7/1 6/30 $ Yes Gift Cards, If redeemable in merchandise only, the amount abandoned is deemed to be sixty percent of the certificate's face value. North Carolina 1 Nov 7/1 6/30 $ Yes B2B Exemption covers A/R Only. Gift Cards Exempt if does not expire or states it does not expire in NC. South Carolina 1 Nov 7/1 6/30 $ No Georgia 1 Nov 7/1 6/30 $ No Florida 30 Apr 1/1 12/31 $ Yes De Minimus Exemption Items $10.00 or less are exempt credit balances, customer overpayments, security deposits and refunds. Gift Cards: Exempt if does not expire or charge fees. Tennessee 1 May 1/1 12/31 $ Yes B2B exemption is a deferral for A/R and A/P ongoing business relationship required for exemption. Gift Cards: A gift certificate issued after 12/31/98 is not subject to escheatment if there is no expiration date or dormancy fees. No due diligence Delaware 1 Mar 1/1 12/31 required 3 5 No Rhode Island 1 Nov 7/1 6/30 $ No Vermont 30 Apr 1/1 12/31 $ Yes Gift Certificates: Reporting is not required for certificates issued after 7/1/2006. Note: The above listed matrix is for discussion purposes only. State unclaimed property information is subject to change. Listed material is meant to provide general information and should not BDO be acted KNOWLEDGE on without professional Webinar advice Series tailored to your Northeast firm s individual & Mid- needs. Atlantic- Unclaimed Property Update & Pending Legislation Page 24

25 Policies and Procedures Review current policies and procedures Recommendation for maintaining prospective compliance Final deliverable of draft Policies and Procedures given the results of prior steps Meet with process owners Send/review questionnaires GL system review Set up escheat liability account(s) AR, AP, PR Obtain source documentation Verify AR, AP, PR procedures MITIGATE PROSPECTIVE EXPOSURE Page 25

26 AR AP Payroll TPA Interview Process Owners Obtain Sample A/R aging Complete A/R questionnaire GL system review Verify unapplied cash practices Verify de minimis writeoff practices Identify manual and automatic writeoffs (if any) Document A/R process; draft policy and procedures Setup A/R escheat liability GL account Augment policy and procedures for escheat best practices and compliance timeline Interview Process Owners Obtain sample check register or outstanding checklist and void reports Complete A/P questionnaire GL system review Verify stale date and void practices Identify manual and automatic writeoffs (if any) Document A/P process; draft policy and procedure Setup A/P escheat liability GL account Augment policy and procedures for escheat best practices and compliance timeline Interview Process Owners Determine if payroll done in house or outsourced (ADP) Obtain sample check register or outstanding checklist and void reports Complete payroll questionnaire GL system review Verify stale date and void practices Identify manual and automatic writeoffs (if any) Document payroll process; draft policy and procedure Setup payroll escheat liability GL account Augment policy and procedures for escheat BPs and compliance timeline Interview Process Owners Complete TPA Matrix Obtain TPA Plan Documents TPA Confirmation Affidavits GL system review Identify manual and automatic writeoffs (if any) Document TPA process; draft policy and procedure Setup TPA escheat liability GL account Augment policy and procedures for escheat best practices and compliance timeline Page 26

27 Compliance Process Overview 6-Step Process Step 1 - Kick-off Step 2 - Compilation Step 3 - Exemptions Step 4 - Due diligence Step 5 - Reconciliation Step 6 - Reporting Page 27

28 Timeline Fall 2016 Compliance Kick-off Meeting Client response to data request Due diligence Reissue checks from DDL Prepare UP reports & check request Reports to states April 15 May 31 July 1 July 31 Sept 1 Sept 15 Oct 15 Nov 15 April 1 May 15 June 1 June 30 August 30 Sept 16 Oct 7 Oct 20 Data request Page 28 Validate data and ID exemptions Compile DDL responses Prepare reconciliation and send to Client Reports and checks to BDO Provide electronic copies to Client

29 Timeline Spring 2017 Compliance Compile DDL responses Prepare UP reports & check request Reports and checks to BDO Reports to states Dec 1 Dec 31 Feb 1 Feb 15 Feb 28 June 15 Jan 1 Jan 31 Feb 20 May 1 July 1 Due diligence Prepare reconciliation and send to Client Reissue checks Provide electronic copies to Client Page 29

30 NE & Mid Atlantic State Summary Page 30

31 Escheat Friendly Northeast & Mid-Atlantic States DE NY NJ PA ME NH VT WV FL RI GA SC TN CT MD NC MA VA D D D D D D C C C C C C+ C+ B B+ A A A NAUPA State Scorecards Based on several factors: B2B & Gift Certificate Exemptions Periods of Limitations Independent Appeals Process Ban on Contingent Fee Auditors Penalties & Interest Page 31

32 NE & Mid-Atlantic Summary Matrix State Typical Audit Reach Back Based on Experience Record Retention Formal VDA Program VDA Reach Back Penalties & Interest Waived in VDA Maine Typically 10 Years + Dormancy 10 Years + Dormancy No Informal VDA Available Typically 10 Years + Dormancy Case by Case Basis New Hampshire Years + Dormancy No Informal VDA Available Typically, 10 Years + Dormancy Case by Case Basis Massachusetts 6 Years + Dormancy for filers; TBD for non filers 6 Years + Dormancy Yes Not specified: Typically, 9 years (6 + dormancy) Yes Connecticut 10 Years + Dormancy None No May be able to request informal VDA N/A N/A New York Years + Dormancy Yes VCA 1992 Yes Yes for Penalties New Jersey 15 Years + Dormancy 5 Years + Dormancy Yes 10 Years + Dormancy, No reach back for equity related property No for Interest Note: The above listed matrix is for discussion purposes only. State unclaimed property information is subject to change. Listed material is meant to provide general information and should not BDO be acted KNOWLEDGE on without professional Webinar advice Series tailored to your Northeast firm s individual & Mid- needs. Atlantic- Unclaimed Property Update & Pending Legislation Page 32

33 NE & Mid-Atlantic Summary Matrix State Typical Audit Reach Back Based on Experience Statute of Limitations Record Retention Formal VDA Program VDA Reach Back Penalties & Interest Waived in VDA Pennsylvania 15 Years + Dormancy Report Filed: 15 Years after filing; Report Not Filed: 15 years after property became escheatable None Yes 10 Years + Dormancy Yes Maryland 8 Years + Dormancy 5 Years unless fraud or no report filed 8 Years + Dormancy Yes 5 Years + Dormancy Yes Washington, D.C. 10 Years + Dormancy 10 Years + Dormancy for filings; No Statute if Company did not file 10 Years + Dormancy No Informal VDA Available Typically 10 Years + Dormancy Case by Case Basis Virginia 10 Years + Dormancy or back to report year 1985 if the holder has not filed any reports 5 Years if filed; 10 years for fraudulent or no report filed 10 Years + Dormancy Yes 10 years + dormancy Yes West Virginia 10 Years + Dormancy 10 Years + Dormancy for filings; Tolled if no filing or fraudulent filing 10 Years + Dormancy Yes 10 Years + Dormancy Yes North Carolina Not specified; Likely 5 Years + Dormancy or company inception 5 Years + Dormancy for filings; Tolled if no filing or fraudulent filing 5 Years + Dormancy Yes 2000 Forward Yes Note: The above listed matrix is for discussion purposes only. State unclaimed property information is subject to change. Listed material is meant to provide general information and should not BDO be acted KNOWLEDGE on without professional Webinar advice Series tailored to your Northeast firm s individual & Mid- needs. Atlantic- Unclaimed Property Update & Pending Legislation Page 33

34 NE & Mid-Atlantic Summary Matrix State Typical Audit Reach Back Based on Experience Statute of Limitations Record Retention Formal VDA Program VDA Reach Back South Carolina 10 Years + Dormancy 10 Years + Dormancy 10 Years + Dormancy Yes 10 Years + Dormancy Georgia 10 Years + Dormancy None 10 Years + Dormancy Yes 10 Years + Dormancy Florida 10 Years + Dormancy 10 Years + Dormancy 5 Years + Dormancy Yes 10 Years + Dormancy Tennessee 10 Years + Dormancy 10 Years + Dormancy; Tolled if no or fraudulent reporting or administrator initiates an audit of report 10 Years + Dormancy Yes 7 Years from Entry Date Delaware *Pending Exam: 1986 *7/1/15 12/31/16 Exam Notice: 1/1/1991 *1/1/17: 22 Years Prior to Notice For filings after 7/22/2002, 3 years after date report is filed or 6 years if 25% understatement in the report. For reports filed prior to 7/22/ 2002, no statute of limitations applies; state looks back on audit look back. None Yes Filed by 12/31/16: 1/1/1996 Filed after 1/1/17: 19 Years Rhode Island 10 Years + Dormancy 10 Years + Dormancy 7 Years + Dormancy No Informal VDA Available Typically 10 Years + Dormancy Vermont Company Inception 10 Years + Dormancy; Tolled if no or fraudulent reporting 10 Years + Dormancy Yes 10 Years + Dormancy Note: The above listed matrix is for discussion purposes only. State unclaimed property information is subject to change. Listed material is meant to provide general information and should not BDO be acted KNOWLEDGE on without professional Webinar advice Series tailored to your Northeast firm s individual & Mid- needs. Atlantic- Unclaimed Property Update & Pending Legislation Page 34

35 Recent State Developments Page 35

36 Recent Developments Gift Cards Connecticut H.B Date signed: 6/9/2016; date effective: 10/1/2016 An issuer of a gift card must provide the purchaser with an electronic or paper copy of a proof of purchase or gift receipt and, o Must provide the purchaser of goods or services with cash, on request, if the balance is under $3 and the purchaser provides the proof of purchase or gift receipt. Previously, a purchaser could receive cash if the balance was under $10 New York A.B , introduced 5/16/2016 Gift cards sold in New York would be prohibited from having an expiration date o Although New York currently requires expiration dates to be clearly stated, many gift cards are currently sold without following this rule. Page 36

37 Recent Developments Dormancy Periods New York S.B. 7803, introduced 5/12/2016 Amends the dormancy period from 3 years to 5 years for all current 3 year property, including accounts payable and accounts receivable Pennsylvania H.B. 2005, introduced 4/19/2016 Amends the dormancy period from 3 years to 7 years for certain property types, including: o o Demand, savings, or matured time deposits in a financial institution Funds paid toward the purchase of shares or other interests in savings associations State Administration: Delaware S.B. 285: Allows state to provide compensation for maintaining abandoned property payment systems Massachusetts S.B. 1710, introduced 4/25/2016 State agencies would be prevented from hiring auditors on a contingent fee basis to assist with duties related to assessments or taxations. Page 37

38 Recent Developments Temple Inland - Background Temple-Inland, Inc. v. Cook Temple-Inland, Inc., a Delaware incorporated entity, was audited by Kelmar Associates on behalf of the State of Delaware beginning in 2008, and subsequently filed an administrative appeal regarding Kelmar s Report of Examination. Temple-Inland alleges that its substantive due process rights were violated due to the use of estimation. Summary Judgments (6/28/16) - Substantive due process (SOL, Record Retention, Retroactivity, Misleading Estimation, Multiple Liabilities) - Court declined to grant summary judgment to either party in regards to the taking clause - Court granted DE motion for ex post facto clause Settlement (approx. 8/5/16) - DE agreed to $0 assessment and paid full attorney fees - No remedy provided Page 38

39 Recent Developments Temple Inland DE Response DE Secretary of State (SOS) VDA Response Late August 2016 TI is limited to specific facts circumstances of the case DE SOS is different than an Audit Extrapolation appears to be gross approach - Similar/identical to other state estimation techniques State agrees to indemnify holder for all future claims by another state on estimated property Penalty estimations for failure to keep records likely not DE indemnified Look-back period will change to 10 years plus dormancy 5 years = 15 years DE Department of Finance (DOF) Audit Response TBD Page 39

40 Recent Developments Temple Inland Impact on DE VDA Potential Upcoming Legislative Changes in 2017: A statutory reduction in the VDA look-back period that follows most other states look-back periods Changes addressing the following issues: Express record retention provisions for unclaimed property reports directly tied to the current statute of limitations; and Negative reporting requirement that would clarify how the statute of limitations would be applied to holders that do not have property to be reported to Delaware for any years Other potential changes Page 40

41 Legal Update Page 41

42 Recent Litigation- California Taylor v. Yee On September 8, 2016, an Amicus Curiae Brief was submitted to the U.S. Supreme Court regarding the Taylor v. Yee Petition for Writ of Certiorari Issue: Whether California Unclaimed Property Law (UPL) violated the Due Process Clause by failing to provide adequate notice to owners of unclaimed securities before they were escheated Petitioner claimed that California s use of general advertisements published in newspapers, along with written notification sent to known invalid addresses, was inadequate, as California could have taken stronger measures to locate the owners. On February 29, 2016, the U.S. Supreme Court agreed to let a lower court ruling in Taylor v. Yee stand and would not hear the case. Justice Alito wrote in a concurrence note that the constitutionality of current state escheat laws is a question that may merit review in a future case. Page 42

43 Recent Litigation- Delaware State of Delaware ex rel. French v. Card Compliant LLC, et al. In May 2015, a qui tam (false claims) actions was brought by Delaware against a 3 rd party gift card issuer, Card Compliant, 30 of its retail gift card clients, and the National Retail Federation. The action alleged that Card Compliant and its clients tried to claim certain escheatable transactions were not escheatable property in order to avoid remitting the property to Delaware. Main points of Delaware s most recent court decision: Although the retailers believed they had transferred unclaimed property liability to Card Compliant, the retailers retained responsibility according to the judge. The judge applied the Second Priority Rule in this case, stating that unincorporated holders should report property with an unknown address to the state where the organization was formed, not the principal place of business as most states require. Gift-card related unclaimed property rules are complex and still evolving. Page 43

44 Recent Litigation- Delaware Office Depot v. Cook: Office Depot, similar to many other retailers, uses a special purpose entity ( SPE ) for its gift card/gift certificate management. The SPE, NACCS, was incorporated in 2002 in Virginia, a state which exempts gift cards from unclaimed property reporting During a Delaware audit which began in 2013, the auditor requested information regarding these gift card transactions. However, Office Depot refused to provide this information, arguing that these transactions were outside of Delaware s jurisdiction. The auditor referred the issue to Delaware s attorney general for enforcement. On July 18, 2016, Office Depot and NACCS filed suit against Delaware, seeking a declaratory judgment which argues: That the state s unclaimed property requests amount to an unreasonable search and seizure (4 th Amendment violation), That the unclaimed property laws violate the priority rules established in Texas v. New Jersey Page 44

45 Recent Litigation- Delaware Marathon Petroleum v. Cook: Similarly to Office Depot, Marathon uses a gift card company located in Ohio, another state that exempts gift cards from unclaimed property Marathon objected to Delaware s estimated $8 million dollar gift card liability; at that point, the auditors requested records related to the gift card company Marathon refused to turn over these records and filed suit, arguing a violation of the priority rules and the 4 th Amendment, as well as the state s estimation practices On August 10, 2016, Delaware argued that the federal priority rules do not apply to audits of private entities. Marathon s response included arguments regarding Delaware s interpretation of federal law and comparing the nine-year audit to a fishing expedition Page 45

46 Recent Litigation- Delaware Plains All American v. Cook: Plains, a Delaware partnership headquartered in Houston, was audited by Delaware in The audit lookback period would be to 1986 if the audit was completed by June 30, 2015, or to 1981 if completed thereafter. In January 2015, Plains sent the Delaware auditor a list of objections to the audit, which Delaware dismissed Subsequently, Plains brought its action for declaratory judgment and injunctive relief in the U.S. District Court of Delaware. The action alleged numerous claims, including the following: An irrational and illogical audit target selection process; Overly broad, unreasonable, and warrantless demands for information; The continual threat of penalties and interest for failure to submit to the examination; Implementing a thirty-five year look back period; The multi-state nature of the exam; The estimation technique that will likely be employed; Retroactive application of the penalty and estimation provisions of Delaware s law; Lack of a record retention requirement by Delaware; and Lack of additional audit procedures to protect a holder s due process rights. Page 46

47 Recent Litigation- Pennsylvania Treasury Department of the Commonwealth and Treasurer Timothy Reese, Plaintiffs v. Delaware State Escheator David Gregor and MoneyGram Payment Systems Inc., Defendants (U.S. District Court for Middle District of Pennsylvania) On February 26, 2016, Pennsylvania filed a complaint in which Moneygram Payment Systems, Inc. ( Moneygram ) and Delaware are named as defendants. Moneygram sells both money orders and official checks. Money orders are sold in traditional retail locations and have low limits, whereas official checks are sold at banks and do not have low value limits Moneygram is the holder of the value of official checks sold in Pennsylvania. If a check is never used, the Company retains the money. Since Moneygram is incorporated in Delaware, any unclaimed official checks without owner addresses would be escheated to Delaware under general priority rules of Texas v. New Jersey. Pennsylvania, the plaintiff, alleges that Moneygram incorrectly escheated official checks that were issued in Pennsylvania to Delaware. Under the FDA, the state where a money order or similar written instrument was purchased is entitled to take custody of the value of these instruments. Key Issue: Whether unclaimed funds attributable to the official checks in question are to be governed by the general priority rules, or should these funds governed by the specific rules of the FDA? Page 47

48 Recent Litigation- Other States STATE OF ARKANSAS, STATE OF TEXAS, STATE OF ALABAMA, STATE OF ARIZONA, STATE OF COLORADO, STATE OF FLORIDA, STATE OF IDAHO, STATE OF INDIANA, STATE OF KANSAS, COMMONWEALTH OF KENTUCKY, STATE OF LOUISIANA, STATE OF MICHIGAN, STATE OF MONTANA, STATE OF NEBRASKA, STATE OF NEVADA, STATE OF NORTH DAKOTA, STATE OF OHIO, STATE OF OKLAHOMA, STATE OF SOUTH CAROLINA, STATE OF UTAH, AND STATE OF WEST VIRGINIA, Plaintiffs, v. STATE OF DELAWARE, Defendant. On June 9, 2016, 21 states also filed a lawsuit in the Supreme Court against Delaware over the alleged mishandling of Moneygram s official checks. The lawsuit includes the following states: Alabama, Arizona, Arkansas, Colorado, Florida, Idaho, Indiana, Kansas, Kentucky, Louisiana, Michigan, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, Texas, South Carolina, Utah and West Virginia. Page 48

49 Questions? Page 49

50 CLOSING COMMENTS Page 50

51 CLOSING COMMENTS Unclaimed Property Overview: Types, priority rules, dormancy periods, audit process, and extrapolation Northeast & Mid-Atlantic - Compliance & State Summary: Audit practices, voluntary disclosures, solicitation letters, and release of historic liability Northeast & Mid-Atlantic State Updates: Recent Developments (e.g., gift cards, dormancy periods and Temple-Inland) and legal (e.g., Taylor v. Yee and Moneygram) Page 51

52 Biographies Page 52

53 BIOGRAPHY Ricardo Garcia, West Coast Unclaimed Property Practice Leader Ricardo has over 10 years of experience advising multinational and domestic companies on unclaimed property matters. Ricardo has provided clients with unclaimed property general consulting, audit defense, and compliance services in many industries including healthcare, manufacturing, entertainment, and retail. As the firm s West Coast Unclaimed Property Practice Leader, Ricardo has established professional relationships with many of the state unclaimed property administrators in handling client matters, and has successfully negotiated voluntary disclosure agreements on behalf of clients and provided audit representation services. rigarcia@bdo.com Direct:(714) In addition, Ricardo has significant escheat planning experience and has helped many clients mitigate exposures through intercompany planning techniques and strategies. 600 Anton Boulevard, Suite 500 Costa Mesa, CA Tel: (714) Page 53

54 BIOGRAPHY Elizabeth Foley Mid-Atlantic Unclaimed Property Practice Leader Elizabeth has more than 10 years of experience working on abandoned and unclaimed property (AUP) matters and has extensive knowledge of AUP rules and regulations. Elizabeth has worked in a consulting role assisting clients in all areas of AUP needs. Additionally, Elizabeth has managed unclaimed property examinations for the country s lead contract AUP auditing firm. efoley@bdo.com Direct: Mobile: Two International Place Boston, MA Tel: As the firm s Mid-Atlantic Regional Unclaimed Property Practice Leader, Elizabeth helps clients with all of their unclaimed property needs with a specialization in audit defense and voluntary disclosure agreement (VDA) assistance. In addition, Elizabeth has also assisted clients with unclaimed property risk assessments, general consulting and the development of policies and procedures. Elizabeth has worked with a variety of industries including energy and utility, oil and gas, food and beverage, manufacturing, retail, and insurance. Prior to joining BDO, Elizabeth worked with Ryan, LLC in their unclaimed property consulting practice and Kelmar Associates, LLC as a manager of unclaimed property audits contracted on behalf of numerous states. PROFESSIONAL AFFILIATIONS Unclaimed Property Professional Organization, Member EDUCATION B.S., University of Massachusetts, Amherst, Isenberg School of Management Page 54

55 BIOGRAPHY Todd Faciana Senior Director, State and Local Tax Todd is a state and local tax specialist who represents and advises clients on a wide array of income/franchise tax, sales/use tax and other tax issues that arise in the context of controversies and mergers and acquisitions. tfaciana@bdo.com Direct: Fax: Market Street, Suite 1700 Philadelphia, PA Tel: Todd is a California licensed C.P.A. and a Pennsylvania and New Jersey licensed attorney who has been practicing in the field of state and local taxation for over 13 years. In addition to his experience with BDO, Todd has several years of Big Four firm experience as a state and local tax specialist (compliance and consulting), two years as a legal intern with the Pennsylvania Office of Attorney General Tax Litigation Section, and over three years of experience as a state and local tax attorney with a Top 100 law firm. His work experience includes a wide array of state and local tax offerings, including representing clients before the Pennsylvania Department of Revenue, Board of Appeals and Board of Finance and Revenue, representing clients before the New Jersey Division of Taxation and Conferences and Appeals and assisting clients with voluntary disclosures, tax amnesties, tax due diligence reviews, and income/franchise and sales/use tax advisement. PROFESSIONAL AFFILIATIONS American Institute of Certified Public Accountants Pennsylvania Institute of Certified Public Accountants Page 55 EDUCATION Tax LL.M., Temple University, Beasley School of Law J.D., Pennsylvania State University, Dickinson School of Law B.S., California State University, Long Beach

56 Biography Allie Kant, J.D. With over 5 years of State and Local Tax experience, Allie has worked with a wide variety of the Firm s clients. She is a dedicated member of the unclaimed property tax practice providing analysis and quantification of potential liability for unclaimed property as well as assisting in remediation. Her unclaimed property clients are both public and private companies including large retailers. Allie has established professional relationships with many of the state administrators in handling client matters, and has successfully submitted voluntary disclosure agreement packages on behalf of clients and provided audit defense representation services. She also has experience with sales and use tax consulting, income/franchise tax compliance, and the NYC Commercial Rent Tax. akant@bdo.com Direct: Park Avenue New York, NY PROFESSIONAL AFFILIATIONS Member of the New York State Bar Member of the New Jersey State Bar EDUCATION Juris Doctorate, University of Pittsburgh School of Law B.S.B.A., Accounting and French, University of Richmond Tel: Page 56

57 BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 58 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of 1,328 offices in 152 countries. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm s individual needs BDO USA, LLP. All rights reserved. Page 57