May 7-9, 2017 How the Revised Uniform Unclaimed Property Act is Impacting A/P by Karen Anderson Senior Manager, KPMG LLP May 9, 2017 11:15 AM 12:15 PM
Disclaimers The following information is not intended to be written advice concerning one or more Federal tax matters subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. KPMG LLP does not provide legal services Content 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.
Agenda May 7-9, 2017 Unclaimed Property Nuances: A Quick Refresher Types of AP Unclaimed Property The Triggers of Significant Change The Temple Inland Decision 2016 Uniform Unclaimed Property Act Other Triggers Initial and Continuing Outcomes and Impacts Q&A What to Expect and Watch in 2017
Unclaimed Property Nuances: A Quick Refresher 1. Jurisdiction: UP is not a tax and so traditional nexus rules do not apply. Special federal common law priority rules apply instead: state of owner address controls. 2. Custodial Laws: UP states are custodial in nature. Not a true escheat If efforts by holders to reunite rightful owners with their property are unsuccessful, the property must be reported and remitted to the state after a specified time period Most states act as a custodian to step into the shoes of the owner in perpetuity (Derivative Rights Doctrine) 3. 55 Reporting Jurisdictions: All fifty states, the District of Columbia, Puerto Rico, Guam, U.S. Virgin Islands and the Northern Mariana Islands have requirements for unclaimed property reporting Guam and the Northern Mariana Islands presently limit reporting to financial institutions No two state unclaimed property laws are exactly alike 4. Statute of Limitations: No statute of limitations under most unclaimed property laws. 5. Record Retention: Lengthy periods usually at least the dormancy period plus 10 years. 6. Broad Entity Inclusion: Corporations, non-profits, limited liability companies, and partnerships in almost every industry including retail, manufacturing, financial services, insurance, wholesale distribution, communication, healthcare, etc. 7. Expansive Property Type Coverage: Includes accounts payable checks, aged accounts receivable, payroll items, health savings accounts, IRAs, 529 plans, royalties and more.
U.S. Reporting Jurisdictions U.S. Reporting Jurisdictions = 55 The 50 U.S. States + District of Columbia, Puerto Rico, Guam, U.S. Virgin Islands, and Northern Mariana Islands
Common Types of Unclaimed Property Common Types Wages/Payroll/Salary Commissions Bonuses Expense reimbursements Accounts Payable/Vendor Customer Refunds Unredeemed Gift Cards and Certificates Checking/Savings Accounts Safe Deposit Box Contents Royalties Mineral Rights Life Insurance Proceeds Annuities Often Overlooked Types A/R Credit Balances Overpayments, duplicate payments Un-refunded overcharges Unapplied Cash Unidentified Remittances Unredeemed Merch. Credits Rebates Stock and dividends Self-insured Benefit Plans Self-insured Insurance Plans Worker s Comp Benefits Flexible Spending Accounts Retirement Accounts 6
Jurisdiction Owner Address Controls United States Supreme Court Established Priority Rules Texas v. New Jersey, 379 U.S. 674 (1965) Reaffirmed by Pennsylvania v. New York (1972) & Delaware v. New York (1993) First Priority Rule Property should be remitted to the state of the owner s last known address based on the holder s books and records. Second Priority Rule Part 1 property with no last known address is reportable to the state of the holder s (debtor) domicile.» State of incorporation, formation or principal place of business Part 2 if the state of last known address does not provide by law for the escheat of the property, the state of the holder s domicile has the power to escheat.
May 7-9, 2017 The Triggers of Change: The Temple Inland Decision Audit Estimation and Reach-Back Temple-Inland Inc. v. Cook (USDC DE) Following a multi-year unclaimed property audit, Temple-Inland filed suit in federal court alleging several constitutional violations in Delaware s unclaimed property law. June 28, 2016: The court ruled on cross-motions for summary judgment on three (3) constitutional issues: Takings clause Denied; factual issues remain Ex post facto clause Denied Temple-Inland s motion and granted in favor of Delaware Substantive due process The court found in Temple-Inland s favor after weighing specific factors involved in the audit such as the estimation method, reach-back period, the lack of a Delaware record retention statute and the fact that Delaware waited 22 years to audit the holder. To put the matter gently, defendants have engaged in a game of gotcha that shocks the conscience. - Judge Gregory M. Sleet DE SOS Statement - In August 2016, even while disavowing that the Temple-Inland decision had broad application, the Delaware Secretary of State administratively reduced the reach-back period for the voluntary disclosure process and indicated that legislative reform would occur in the future.
The Triggers of Change: 2016 Uniform Unclaimed Property Act A model law for consideration by state legislatures May 7-9, 2017 Revises the 1995 Uniform Unclaimed Property Act (UUPA) to account for changes in technology, new financial vehicles, and to balance the interests of states in enforcing unclaimed property laws with fairness to holders and the privacy concerns of consumers. Formally adopted in July 2016 by the Uniform Law Commission, after almost 3 years of research, discussion, testimony and deliberation. The stakeholders involved in the revision process included: State administrators and officials Business and unclaimed property trade groups including COST Legal experts Third-party audit contractors
May 7-9, 2017 The Triggers of Change: 2016 Uniform Unclaimed Property Act A few of the key 2016 UUPA provisions: Statute of limitation/repose and record retention period 5 years after filing a non-fraudulent report / 10 years after duty arose Electronic contact recognized to toll dormancy period Securities liquidation restriction (no sale for 3 years make claimant whole for 6 years Due diligence (including email ) Basic: letter send first class USPS mail AND email (if holder has email address) Enhanced owner outreach requirement for Securities, IRAs, and UGMA/UTMA Accounts Interim and post audit informal conferences Audit transparency plus data privacy State audit employee restrictions on later employment with 3 rd party auditors Enhanced penalties and interest for failure to comply plus a new penalty for evasion of act requirements Specific inclusion of modern property types: i.e., payroll cards, health savings accounts, and virtual currency but specific exclusion of loyalty cards, gamerelated digital content
May 7-9, 2017 Significant Impacts of the Triggers: DE SB 13 (ENACTED) Partially motivated by the Temple-Inland decision, Delaware SB 13 made sweeping changes to the Delaware unclaimed property law and includes many provisions from the 2016 UUPA. Effective as of 2/2/2017. Key provisions include: Statute of Limitations: 10 years after the duty to report, pay, or deliver property arises Record Retention: 10 years from date report filed Audit and VDA Reach-Back Period: 10 report years Expedited Audit Option: Limited time period to opt in Audit to VDA Conversion Option: Limited time period to opt in New Due Diligence Requirements All property types Reporting Method: On-line beginning in 2018 Requirement to Promulgate Important Rules
May 7-9, 2017 More Significant Impacts of the Triggers: PA HB 1605 and NY VCA Look Bank 1. Pennsylvania HB 1605- Key new provisions (both are variations of RUUPA provisions): New Due Diligence Requirements: Holder of abandoned property valued at $50 or more must send notice to the owner, not more than 120 days nor less than 60 days prior to the date in which the report is filed. Written notice must be sent by 1st class mail, unless the owner has previously agreed to an electronic notice method that remains valid IRA Dormancy Trigger Change and Additional Outreach for Certain IRA Accounts: Removed the date of mandatory distribution as the trigger and initiates the period on the date the holder lost contact with the owner (defined as 1 or 2 consecutive RPOs). 2. York administratively reduced reach back period in voluntary compliance program For VCA program enrollees after 1/1/2017, the reach back is 10 years reduced from 20 years
More Significant Impacts of the Triggers: Pending 2016 UUPA-Related Legislation May 7-9, 2017 The following states have legislation pending that, if enacted, will replace their UP law with the Revised Uniform Unclaimed Property Act (with different variations). Illinois HB 2603: Includes in-store credits for returned merchandise as reportable unclaimed property if outstanding for 3 years Reduces dormancy periods for many property types to 3 years from 5 years Expands the window period for performing due diligence to 60 days to 1 year prior to reporting Eliminates the Business to Business Exemption for vendor checks and A/R credits Eliminates the Gift Card Exemption Minnesota SB 1035: Moves the reporting deadline for non-life insurance companies to 4/30 from 10/31 Includes virtual currency in the definition of property subject to unclaimed property reporting but excludes loyalty cards Adds provisions for electronic contact and due diligence between owners and businesses
May 7-9, 2017 More Significant Impacts of the Triggers: Pending 2016 UUPA-Related Legislation Nebraska LB 141: The Non-RPO applicable to accounts held in financial institutions provision in current law is not included in the NE RUUPA Increases the statute of limitations from 7 years to 10 years for businesses that have not filed unclaimed property reports Increases the record retention period from 7 years after the property was reportable to 10 years after the report was filed or was due to be filed Tennessee HB 420 and SB 371: Changes the report deadline for holders (except life insurers) to 10/31 from 4/30 Reduces the dormancy periods for many property types from 5 to 3 years Utah SB 175: Requires reports to be filed via the internet Increases the record retention period from 5 years to 10 years after the holder files the report Eliminates the acceptance of linkage between account held by financial institutions
May 7-9, 2017 What to Expect Next Delaware Audit Rule Promulgation Delaware VDA and Audit Closure Acceleration (Post Rule Adoption) Additional RUUPA-related legislation and potential enactments with variations Legislation focused on state revenue generation related to unclaimed property (i.e., AR HB 1142 & SD SB 34) The enactment of legislation adding more states to the 23 that now require life insurers to perform death master file comparison (In 2016, Florida, Illinois and Missouri enacted such legislation.)
May 7-9, 2017 Other Significant Pending Legislation IL HB 2536 Amends the Illinois unclaimed property law to require that due diligence letters be sent by certified mail instead of first class mail. ME LD 145 Requires a financial institution authorized to do business in Maine to send a written notice by registered mail to the owner of the unclaimed or inactive account at the owner s last known address informing the account owner of the disposition of the money or the pending closure of the account, prior to disposing of money in an unclaimed account or closing an inactive account. NY AB 1881 Removes the condition that there must be a mailing returned as undeliverable by the post office for wages to be considered abandoned. Increases from $1000 to $3000 the threshold over which a certified mailing must be sent to an owner when the first due diligence mailing has garnered no response or was not RPO Requires state comptroller to issue rules establishing when an electronic communication from the owner constitutes "written contact" for purposes of tolling the dormancy period. With regard to the dormancy period applied to "outstanding checks issued in payment for goods or for services and owned in NY", the period is made the same as that applied to "outstanding checks" regardless of whether issued in payment for goods or for services and owed in NY"
Questions and Answers Your Presenter Today: May 7-9, 2017 Karen Anderson, Senior Manager KPMG, LLP karenanderson@kpmg.com 317-523-5049
May 7-9, 2017 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.