Voluntary Disclosure Agreement (VDA) Developments

Transcription

1 ABANDONED AND UNCLAIMED PROPERTY Issue 2, Volume 4 December 2014 Voluntary Disclosure Agreement (VDA) Developments New Developments in Arkansas and Puerto Rico Voluntary Disclosure Agreements (VDAs) remain an important tool in a holder s arsenal for unclaimed property compliance. Given the benefits, the appeal of participating in VDAs is quite understandable. VDAs generally provide shorter look-back periods compared to look-back periods associated with state audits. Moreover, many states will waive any potential interest and/or penalty assessment when a holder comes forward voluntarily to participate in a VDA. Participating in a VDA can also reduce the risk of being audited in many states, particularly when a VDA is subsequently followed by a period of on-going annual compliance. Fortunately, many states offer either formal or informal VDA programs. Naturally, the precise steps, requirements, and processes to follow can vary depending on each respective jurisdiction s program. However, some states do not have specific authority authorizing VDAs in their unclaimed property acts. For example, California Unclaimed Property Division officials have indicated it would take action on the part of the Legislature to authorize a VDA or Amnesty program. Some of the more recent developments in this area include new VDA-type programs in Arkansas and Puerto Rico. Arkansas has indicated, via materials published on the Auditor of State s website, that it offers three alternative voluntary programs to any holder not currently under audit by the Arkansas Auditor of State s Office or a third party acting on the Auditor s behalf, or has not been notified of an intent to conduct such an audit. First, a Voluntary Review Program (AR VRP) is available, whereby a holder who has a filing history with Arkansas can request the State Auditor s Office to review filings for the last ten reporting periods. However, any deficiencies identified via the AR VRP must be remedied by use of one of the two other voluntary programs described hereinafter, to avoid commencement of an audit. Open enrollment for the AR VRP begins on December 1st of each year and closes on each December 31st, and is only available to a limited number of applicants. Second, a Voluntary Compliance Program (AR VCP) is available, whereby holders are permitted to conduct a selfreview and report any delinquent property. This program can be used to report specific property types not previously reported, for correction of properties reported using an incorrect abandonment period, and for property emanating from mergers and acquisitions. A holder generally may always enroll in the AR VCP. This is a similar program to what other states offer via their VDA programs. Third, a Voluntary Disclosure Program (AR VDP) is available, whereby a holder voluntarily submits itself to a formal audit. Enrollment for the AR VDP is only open during the periods of July and December of each IN THIS ISSUE VOLUNTARY DISCLOSURE AGREEMENT (VDA) DEVELOPMENTS... 1 CASE LAW DEVELOPMENTS... 2 STATE LEGISLATION DEVELOPMENTS... 5 UNIFORM LAW COMMISSION DEVELOPMENTS... 8 OUR TEAM R Y A N. T A X R y a n A b a n d o n e d a n d U n c l a i m e d P r o p e r t y 1

2 year. Applicants for all three voluntary filing programs must apply and be accepted by the Auditor of State s Office into each of these programs. If a holder is denied selection to a particular voluntary program, it may be provided with an alternative course of action. Turning to Puerto Rico, the Office of Commissioner of Financial Institutions ( Division ) has recently indicated it will enter into VDAs, provided the holder has not been contacted for audit by the Division or by a third party acting on behalf of the Division to determine compliance with the Puerto Rico Unclaimed Property Act (UPA). The Division requires the holder to submit a report that includes all delinquent unclaimed property items subject to reporting under the UPA, subject to a look-back period of ten years. Upon receipt of payment and an executed VDA, the Division indicates that the holder is relieved of liability to the extent of the amount paid, with respect to claims arising under the Puerto Rico UPA. Case Law Developments THE STATE OF DELAWARE, Plaintiff Ex rel. WILLIAM SEAN FRENCH, Plaintiff- Relator v. CARD COMPLIANT LLC, et al., Defendants (U.S. District Court, District of Delaware) By way of background, Plaintiff William French originally filed this qui tam or whistleblower action, in which the State of Delaware later intervened, in Delaware Superior Court, alleging two claims under the Delaware False Claims and Reporting Act (DFCRA), in connection with certain gift card agreements involving arrangements whereby gift card companies were incorporated under the laws of Ohio, Virginia, or Florida. On May 30, 2014, a Notice of Removal was filed by Defendants in the case with the U.S. District Court, District of Delaware (USDC). The Notice of Removal alleges that the USDC does have jurisdiction over this case, because the claims arise under the Constitution, laws, or treaties of the United States pursuant to the provisions of 28 U.S. C. Sec According to such Notice, the Plaintiffs Complaint alleges that (i) Delaware and not any other state has the right to escheat the not-yet-used balances on the gift cards at issue in this case, (ii) Defendants did not pay such amounts to Delaware, as required by the Delaware Abandoned Property Law, and (iii) such conduct purportedly constitutes a violation of the DFCRA. The gist of the Notice of Removal is that if under the federal common law priority rules, Delaware has no right to claim such unused balances on the gift cards at issue, and that right rests in a different state, then no amounts were due under the Delaware Abandoned Property Law, and there could be no violation of the DFCRA. Plaintiffs filed a Motion to Remand, or send the case back to state court on June 30, 2014 with the USDC, arguing that the claims do not arise under federal law, and, therefore, the USDC does not have jurisdiction. Plaintiffs filed a Memorandum of Law in support of the Motion, which stated that the alleged substantive questions of federal law raised by Defendants are really state law questions. Defendants filed an Answering Brief in Opposition to Plaintiffs Motion to Remand on July 17, Defendants argued that the Delaware DFCRA claims are predicated on misunderstandings of federal common law that are contrary to decisions reached by the U.S. Supreme Court in Texas v. New Jersey, Pennsylvania v. New York, and Delaware v. New York. The crux of Defendants position is that since Plaintiffs cannot plead and prove under federal common law that Delaware has the right to escheat the property at issue, Plaintiffs cannot prevail. Defendants raise four key questions that they state are actually disputed and substantial, are critical to Plaintiffs case, and are important to the federal system as a whole. The first question posed by Defendants in their Answering Brief is Who has the Right to Escheat Under the Secondary Rule of Texas v. New Jersey? Defendants argue that under the secondary rule, the right to escheat belongs to the state in which the Debtor is incorporated. They state in their Answering Brief that in the transactions at issue in this case, Card Issuers, incorporated in States other than Delaware, issued gift cards (or assumed liability for cards already issued), and therefore undertook obligations to the card owners. The Card Issuers are thus the debtors, with the legal obligation to the card owners. It is noted that the gift cards are redeemable at various Retailers, who have an obligation to the Card Issuers to honor the gift cards. Delaware argues incorrectly in its Complaint, Defendants allege, that because Retailers are in possession of the property, Retailers are thus the holders of the property, and therefore liable to Delaware. This argument, Defendants state, is directly contrary to the Texas line of cases, which makes clear that the determination of the state priority state does not turn on where the funds are or who is in possession of the funds. What matters, to determine the second priority state, is who the debtor is who has the legal obligation to the owner R Y A N. T A X R y a n A b a n d o n e d a n d U n c l a i m e d P r o p e r t y 2

3 The second question posed by Defendants in their Answering Brief is Does the Court Identify the Debtor or Engage in Fact-Intensive Evaluation to Determine the Right to Escheat? Defendants note that the Complaint incorrectly indicated that, to determine which state has the secondary right to escheat, a court should evaluate the economic substance of the transaction, which, the Complaint alleged was for the Delaware Defendants to keep possession, money and control of the money from the sale of gift cards, and that the parties chosen form does not bind the state. On the contrary, Defendants note, [t]he Texas rules make clear that the parties chosen form defining the creditor-debtor relationship, and thus defining which party is the debtor does bind the states. It is stated in Defendants Brief that the Supreme Court explicitly stated that it was adopting the Texas rules because they would not require any court to examine the circumstances surrounding each particular item of escheatable property on its own peculiar facts. The third question posed by Defendants in their Answering Brief is May a State Escheat Cash Where the Debtor Has no Obligation to Pay Cash? Defendants state that the Complaint raises the question of whether under federal common law a state may escheat property that is not actually owed. Thus, Defendants contend, Delaware seeks to escheat cash with respect to unused gift cards, where the debtor has no obligation to pay cash to the card owner. Thus, Defendants state: The gift cards are not obligations to pay money to the card owners. But the Complaint ignores this fact. Plaintiffs thus seek to require the Retailers to escheat cash to the state even though they have no debt or legal obligation to pay cash to the card owners. The fourth question posed by Defendants in their Answering Brief is Which State has the Secondary Right to Escheat When the Debtor is an LLC? Defendants note that the Supreme Court directly addressed the issue of which state is the secondary state when the debtor is a corporation, but did not directly address which state is second priority state when the debtor is an LLC. However, due to the unsettled nature of federal common law with respect to an LLC, Defendants note that most states define domicile to mean state of principal place of business of an unincorporated person, and that only a few states, such as Wisconsin and Virginia, define domicile, for this purpose, as an LLC s state of formation. Delaware argues that because its law defines holder to mean every legal entity incorporated or created under Delaware law, if the debtor is an LLC, the second priority state is its State of formation. However, Defendants argue, Plaintiffs miss the point. Delaware s statutory scheme is irrelevant for purposes of determining which State has the right to escheat under federal common law rules. Delaware filed a Brief in support of its Motion to Remand on July 28, 2014, and also requested Oral Argument in this matter. TEMPLE INLAND INC., Plaintiff v. THOMAS COOK, et al., Defendants (U.S. District Court, District of Delaware) On October 1, 2014, a hearing was held before U.S. District Judge Robinson to consider, among other things, Defendants Motion to Dismiss the case and Plaintiff s Motion for Summary Judgment. To summarize, Plaintiff Temple-Inland, Inc., a Delaware corporation that manufactures and sells corrugated packaging, brought suit against Thomas Cook, in his capacity as Delaware Secretary of Finance; David Gregor, Delaware State Escheator; Michelle Whitaker, Delaware Abandoned Property Audit Manager; and Kelmar Associates, LLC (collectively referred to hereinafter as Defendants ). Note: Kelmar Associates was later dismissed from the suit. Plaintiff asked for equitable, declaratory, injunctive, and other relief. Plaintiff alleged that Defendants, on account of actions taken in a Kelmar audit, have violated various provisions of federal law, and that Plaintiff s claims arise from Defendants demand that Plaintiff pay the sum of $1,388, by calling it unreported unclaimed property for the period 1986 through 2003 without being able to identify any actual unclaimed property that Delaware can lawfully claim under federal law. Highlights of the October 1st hearing, as indicated by a review of a Transcript of the Hearing, are as follows. With respect to audit look-back periods, Judge Robinson seemed shocked that Delaware audits were going back more than 30 years. The Transcript quoted Judge Robinson as stating at the hearing: Not knowing much, if anything, about escheat, I was astounded that an audit could go back decades and without any historical records come up with an estimate. Quite frankly, I found that astounding, if not shocking. Judge Robinson indicated that she wasn t sure if the federal court had jurisdiction. As indicated in the Transcript, she stated: I don t know whether it really is a matter of state law that should be reviewed not by me, but by a State court. With respect to Delaware s use of estimation methodology, Judge Robinson also expressed skepticism about the methodology of Delaware estimation R Y A N. T A X R y a n A b a n d o n e d a n d U n c l a i m e d P r o p e r t y 3

4 techniques, and questioned whether estimation violates due process. In its Brief supporting its Motion for Summary Judgment, Plaintiff had argued that federal common law, as created in the Texas v. New Jersey line of cases establishing unclaimed property priority rules, preempts state escheat law and prohibits the use of estimation. Plaintiff s position was that before one could remit unclaimed property to a state, there must be proof that the property actually exists. Plaintiff further argued that the only way mentioned in federal common law to verify intangible property s existence is through companies books and records not through estimation processes that assume unclaimed property exists in years for which there are no records. Plaintiff argued that utilizing estimation violates U.S. Supreme Court precedent and the due process clause by exposing unclaimed property to collection by more than one state. As another argument against the use of estimation, Plaintiff argued, as stated in the Transcript, that you cannot reconcile the derivative rights doctrine with the use of estimation. Plaintiff s legal counsel, as quoted in the Transcript, stated that the Defendants would have this Court believe that a State s inherent authority to escheat, to take custody of unclaimed property has no limits, no boundaries, but this ignores the boundaries imposed by the derivative rights doctrine. The State can only take the rights if they exist in the first instance. Stated in another manner, Plaintiff s counsel states in the Transcript that the bottom line is that the federal common law has incorporated the derivative rights doctrine. Estimation conflicts with that. Delaware argued, in response, that there is no federal common law prohibition on using estimation to determine unreported unclaimed property because the Texas v. New Jersey cases narrowly address state-to-state jurisdictional disputes and have no relevance to stateversus-property holder disputes. Another key issue in the case was whether Delaware Senate Bill 272, enacted in 2010 and apparently recognizing the use of estimation for the first law in an express provision of Delaware s unclaimed property law should be construed to allow for use of estimation on a retroactive basis. Defendants argued that statements in the Synopsis to the Bill indicated it was ratifying prior conduct of using estimation. Plaintiff, however, noted that the language in the Bill itself clearly stated that the estimation provision was effective upon enactment. As stated by Plaintiff s legal counsel, Diane Green-Kelly, in the Transcript, [t]he general assembly knew how to make it retroactive, and they didn t, and any synopsis when the statute is clear the synopsis, you can t even look at the synopsis because the statute is clear on its face. As Plaintiff s legal counsel further stated in the Transcript, the estimation provision can t be applied retroactively without violating due process Nobody knew in 1990 that if they didn t keep their bank reconciliations for 20 years, that they were going to have an estimation. In summary, Plaintiff is seeking a Motion for Summary Judgment asking the U.S. District Court to declare that: (i) federal common law precludes use of estimation techniques, and thus the Delaware Escheat Law violates and is preempted by federal common law, (ii) alternatively, if estimation is allowed to be used, Delaware is doing it in a manner inconsistent with the federal priority rules, (iii) DE S.B. 272, Sec. 4 (which allowed use of estimation) cannot be applied retroactively to a failure to retain records prior to July 22, 2010, and (iv) Defendants be permanently enjoined from enforcing its Demand against Plaintiff and/or assessing penalties and/or interest thereon. HIGHLAND HOMES LTD., Petitioner v. STATE OF TEXAS, Respondent (Texas Supreme Court) On August 29, 2014, the Texas Supreme Court (the Court ), issued an Opinion in favor of Petitioner. Highlights of the case are as follows. By way of background, Petitioner, a major homebuilder in metropolitan Texas areas, allegedly began docking subcontractors pay if they did not furnish proof of adequate general liability insurance coverage. Petitioner contended that the deductions were to cover its own increased exposure from working with uninsured subcontractors. However, several subcontractors alleged that Petitioner had represented it would use such deductions to obtain liability insurance covering the subcontractor. A class of some 1,800 subcontractors filed suit, and the Texas Trial Court certified the class under Rule 42 of the Texas Rules of Civil Procedure. An administrator was appointed to handle various administrative matters. Class representatives agreed, as part of a settlement agreement, that refund checks would be mailed to settlement class members. Any such checks not negotiated within 90 days would be void, and those and other undistributed refunds would be given to The Nature Conservancy ( Conservancy ), a non-profit organization, as part of a cy pres award approved by the Trial Court. In 2012, the parties submitted a proposed settlement agreement to the Trial Court, which ordered that a detailed notice of the proposed settlement be mailed to R Y A N. T A X R y a n A b a n d o n e d a n d U n c l a i m e d P r o p e r t y 4

5 class members at the addresses determined by the administrator. Of some 1,800 notices mailed, 346 were returned as undeliverable, and 121 were mailed to different addresses. The Trial Court found that both the notice and settlement agreement were reasonable, fair and adequate. However, aware that Texas had once challenged a cy pres award as violative of the Texas Unclaimed Property Act (UPA), the parties notified the Texas Attorney General of their proposed award of undistributed funds to the Conservancy. Shortly after judgment was rendered but before it became final, the State of Texas intervened to object to the Conservancy award, arguing that such unclaimed funds should be retained for three years and then paid to the State Comptroller as unclaimed property. The Trial Court refused to modify the judgment, and the State appealed. After consideration of the matter, the Texas Court of Appeals agreed with the state that the anti-limitation provision found in the UPA prohibited the imposition of a 90-day deadline for negotiating settlement checks, and that the private escheat provision of the UPA prohibited the cy pres award to the Conservancy. The Court of Appeals reversed and remanded the case to the Trial Court with instructions to strike those provisions from the settlement agreement, hold such funds for three years, and then remit them to the Comptroller as unclaimed property. An appeal was then filed with the Texas Supreme Court. The Supreme Court granted the Petition for Review filed by Highland Homes. In a split, 5-4 Opinion, the majority Opinion stated that the issue in this case is whether damages and settlement proceeds claimed by class representatives on behalf of absent members are nevertheless unclaimed property, presumed abandoned, and subject to the UPA. In other words, does the UPA prohibit what Rule 42 permits the disposition of absent class members claims by their representatives with court approval? As indicated below, the Texas Supreme Court ruled that the UPA, by its own terms, did not apply to this factual situation. Therefore, they reversed the judgment of the Court of Appeals and affirmed the judgment of the Trial Court. The Supreme Court analyzed the arguments made by Texas that the proposed Conservancy award violated the anti-limitation and private escheat provisions of the UPA. Its Opinion noted that the State s argument was that absent class members had neither asserted claims nor exercised acts of ownership in the litigation; however, the Opinion noted they have exercised acts of ownership through their class representatives. The Opinion stated that class representatives, on behalf of all class members, including absent class members, had, inter alia, asserted claims for refunds negotiated terms for settling the claims, asserted claims for payments under the settlement agreement, and then released all claims. Class representatives actions are those of class members, and are therefore binding on class members, including absent class members, so long as the requirements of due process are met. In effect, the Opinion stated that the pertinent chapter of the UPA did not apply when a claim to property has been asserted or an act of ownership exercised. In this case, it was stated in the Opinion the property was claimed by the owners all settlement class members through their representatives. Under Rule 42 of the Texas Rules of Civil Procedure, the Opinion states, the absent class members participated in the litigation and settlement through their representatives as fully as the representatives did in person. Furthermore, the Supreme Court stated, the settlement administrator is no longer a holder to which Chapter 74 (UPA) applies because such administrator no longer has property belonging to the settlement class members and is not indebted to them because they have agreed, through class representatives, to exercise their right to payment under the settlement agreement within 90 days. State Legislation Developments DELAWARE SB 228 Delaware SB 228 was approved by the Governor on June 30, This extended the period for holders to enter into the Secretary of State s unclaimed property voluntary self-disclosure agreement program. The current sign-up end date was extended from June 30, 2014 to September 30, Additionally, the program termination has been moved from July 1, 2015 to July 1, This is to provide sufficient time for holders participating in the program, as well as increase the time for the Secretary of State, to complete the process. The legislation also codifies Delaware s current confidentiality practices under the special voluntary selfdisclosure program and alters penalties and interest assessments associated with filing deficient unclaimed property reports. DELAWARE SCR 59 Delaware SCR 59 was approved by the Governor on June 17, This sets into motion [e]stablishing a legislative task force to study and make findings and R Y A N. T A X R y a n A b a n d o n e d a n d U n c l a i m e d P r o p e r t y 5

6 recommendations to improve [the] fairness and compliance in Delaware s unclaimed property program. In addition to representatives from Delaware s Legislature and various agencies, the task force is to include two members of the public and representatives from Delaware's State Bar Association, Delaware's State Chamber of Commerce, Delaware's Bankers Association, Delaware's Business Roundtable, and the Uniform Law Commission. Some of the key issues the task force may be considering include, but are not limited to: (i) adoption of a shorter look-back period for audits, (ii) enactment of a record retention schedule, (iii) written audit guidelines, (iv) limiting the term of the state s contract with any contract auditor, and (v) modification of the administrative appeals process. A final report, containing recommendations for any legislative and executive action, is to be submitted in the near future. HAWAII SB 2321 Hawaii SB 2321 became effective on July 1, 2014, reestablishing a period of limitation on certain claims for Hawaii. Claims made for funds totaling less than $100 from the unclaimed property trust fund shall be void if the claim is filed more than ten years after the date that the full amount of the claim was deposited into the unclaimed property trust fund. For funds totaling less than $100 that were deposited into the unclaimed property trust fund on or prior to June 30, 2014, the ten-year time limitation shall commence on July 1, The owner s rights will be terminated for unclaimed funds meeting the prescribed conditions, will escheat to the state, and be transferred to Hawaii s general fund. IOWA HB 2296 Iowa HB 2296 was approved on April 10, 2014 and is effective on gift cards sold after July 1, The dormancy period for gift certificates has been extended to five years. Additionally, when a gift certificate is redeemable for merchandise only, it does not have an expiration date, it is not subject to any fees or other deductions from the value of the gift certificate, and it is honored for an indefinite period of time; then it is not subject to the presumption of abandonment. This exemption applies to gift certificates redeemable for merchandise only. INDIANA SB 208 Indiana SB 208 became effective July 1, Tangible property held in a safe deposit box or other safekeeping depository should now be delivered to the attorney general no later than 30 days after the date the corresponding unclaimed property report has been filed. KANSAS HB 2687 Kansas HB 2687 was approved on May 12, 2014, effective July 1, The administrator may hold a hearing regarding audit results in accordance with the provisions of Kansas s Administrative Procedure Act, if there is a dispute in the results of the examination of the records regarding the disclosure of property reportable and deliverable pursuant to the Unclaimed Property Act. The presiding officer for the hearing shall be appointed by the office of administrative hearings pursuant to K. S. A et seq., and amendments thereto. Any decisions resulting from such hearings shall be public record. Additionally, the legislation removed references related to a person who willfully refuses to pay after written demand as being guilty of a class B misdemeanor. LOUISIANA HB 319 Louisiana HB 319 was approved May 30, 2014, effective January 1, 2015, revising business corporation law. It provides that the Unclaimed Property Act applies to unclaimed funds of a dissolved corporation. MARYLAND SB 648 Maryland SB 648 was approved by the Governor on May 5, 2014, effective October 1, 2014, and deals with unclaimed property provisions for pre-need contracts, requiring for the executor licensed under to transfer all money as identified to the unclaimed property office within the office of the comptroller in the name of the beneficiary or buyer of the pre-need contract. MINNESOTA SF 2398 Minnesota SF 2398 was approved by the Governor on May 9, 2014, effective August 1, 2014, and addresses surpluses related to proceeds from the sale of abandoned contents at a storage facility after satisfying any liens. Any balance remaining unclaimed for more than one year after the sale of the goods must be deposited into the state unclaimed property funds. MISSOURI HB 1075 Missouri HB 1075 became effective August 28, 2014 (except that the payroll check dormancy period reduction becomes effective on January 1, 2015). The items of most interest to unclaimed property holders R Y A N. T A X R y a n A b a n d o n e d a n d U n c l a i m e d P r o p e r t y 6

7 include a business-to-business deferral based on an ongoing business relationship allowing for the exclusion from reporting, which states: "any outstanding check, draft, credit balance, customer's overpayment, or unidentified remittance issued to a business entity or association as part of a commercial transaction in the ordinary course of a holder's business shall not be presumed abandoned if the holder and such business entity or association have an ongoing business association. Furthermore, the legislation defines a business credit as "any credit offered by one business entity to another business entity to be applied in exchange for goods or services but does not have a redeemable cash value" and provides these are not subject to the unclaimed property law. The dormancy period for payroll checks will be reduced from five to three years. Additionally, enforcement of the Unclaimed Property Act will not occur beyond three years after a report is filed or beyond six years if a fraudulent report is filed. However, if no report has been filed, the State Treasurer has the authority to take enforcement actions at any time. MISSOURI HB 1225 Missouri HB 1225 was approved by the Governor on June 10, 2014, and became effective August 28, After a one-year period, any proceeds remaining after satisfaction of the lien shall be considered abandoned property to be reported and paid to the state treasurer in accordance with laws pertaining to the disposition of unclaimed property. NEBRASKA LB 749 Nebraska LB 749, approved by the Governor on March 28, 2014, becomes effective January 1, This legislation provides for assets of a dissolved corporation due to a creditor, claimant, or shareholder of the corporation that cannot be found or who is not competent to receive them. These assets shall be reduced to cash and transferred to the state treasurer according to the Uniform Disposition of Unclaimed Property Act. When the creditor, claimant, or shareholder provides adequate proof of entitlement, claims will be paid out according to the Act. NEW YORK AB 9116 New York AB 9116 was approved and became effective on September 23, This legislation requires for providers of abandoned property location services to provide specific information regarding property held in the state s custody, subject to certain exemptions. PENNSYLVANIA HB 278 Pennsylvania HB 278 became effective July 10, 2014 (except the penalties associated with a third-degree misdemeanor take effect in 180 days from the Bill's effective date). This expansive legislation touches on many different aspects of law, several of which are pertinent to unclaimed property holders. Definitions have been modified and expanded, such as provisions expressly including electronic contact to rebuff the presumption of abandonment, specifically for "secure or password-protected electronic contact, communication or transaction" as permissible contact. The legislation also provides for the expansion of contact "by other criteria provided by the State Treasurer," which would allow for further expansion by rules, regulation, or office policy. Additionally, the definition of record is expanded to allow for both physical and electronic records, specifically allowing a record "that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. Dormancy periods for unclaimed property that are currently five years have generally been reduced to three years. Qualified gift certificates (i.e., those without an expiration date and any post-sale service fees) remain exempt. However, all other gift certificates and gift cards become unclaimed if: (i) they remain unredeemed for two or more years after the redemption period has expired or after the "minimum period specified in section 915(c) of the Consumer Credit Protection Act (Public Law , 15 U.S. C. section 1693l-1(c))," or (ii) they remain unredeemed for three years or more from the date of issuance if no redemption period is specified. The dormancy period will be three years for individual retirement accounts or similar plans that are not subject to a mandatory distribution requirement after (i) the owner has attained an age of seventy and one half (70. 5) years, or (ii) three years after the owner has "indicated an interest in the account or plan or in other property of the owner in the possession, custody or control of the holder. The section addressing enforcement has been rewritten and expanded. One such expansion grants that the "State Treasurer may contract with any other person to conduct the examination on behalf of the State Treasurer, the selection of whom shall not be questioned. Examinations may be conducted "even if the person believes it is not in possession of any property that must be reported, paid or delivered under this article. Upon meeting specified notification requirements, the "State Treasurer at reasonable times may examine the records of an agent, including a dividend disbursing agent or R Y A N. T A X R y a n A b a n d o n e d a n d U n c l a i m e d P r o p e r t y 7

8 transfer agent, of a business association or financial association. Furthermore, the new provisions allow for assessments of the cost of an audit if an audit "of the records of a holder results in the disclosure of property reportable under this article the State Treasurer may assess the cost of the examination against the holder at the rate of $200 a day for each examiner. Additionally, it is within the State Treasurer's authority to assess "a greater amount that is reasonable and was incurred"; however, "the assessment may not exceed the value of the property found to be reportable. For failing to report and pay without good cause, a holder "shall pay a penalty not to exceed one thousand dollars ($1,000) per day" beginning on the day after the report should have been filed and the corresponding property remitted, although the legislation permits for all or a portion of this penalty to be waived by the State Treasurer for good cause. For non-compliance in addition to other permitted sanctions, a person "shall be guilty of a misdemeanor of the third degree and shall, upon conviction, be sentenced to pay a fine not to exceed one thousand dollars ($1,000) for the first offense. A person who is found guilty of a subsequent offense shall be subject to a fine not to exceed five thousand dollars ($5,000). Significantly, the Act provides that, after the effective date of the law, if a holder does not maintain adequate records or such records are insufficient to permit the preparation of a report, the State Treasurer is authorized to use reasonable estimation methods, based on any reasonable method of estimation the State Treasurer may elect. WASHINGTON SB 6135 Washington SB 6135 became effective June 12, All unclaimed property remaining from a liquidated state trust company is subject to the provisions of the Unclaimed Property Act. concerns and theory. Rather, discussion tended to focus on either actual draft language or input needed to create draft language. The Committee Co-Chairs acknowledged the receipt of voluminous pages of content from various stakeholders. Additional submissions were invited; it is requested these be presented by Monday, December 29, First, the Committee directed the Reporter to clarify that gift cards/stored value cards will be added as property into the UUPA; however, a special working group within the Committee will address complex issues, such as whether states can constitutionally require cash, where cards are only redeemable by their owners for merchandise and services. Second, the Committee directed the Reporter to clarify that the UUPA does not cover property owned by foreign residents or located outside the U.S. Third, record retention and statute of limitations issues will be addressed in the UUPA. Fourth, the Committee directed the Reporter to draft alternative B2B exemption language for further review. Fifth, considerable discussion ensued with respect to life insurance issues, with the Committee deciding to form a special working group to explore the issues further. Sixth, the securities industry presented a recommendation that the dormancy standard for securities should conform to the SEC lost securityholder standard, specifically the trigger being based on returned mail; the Committee directed the Reporter to utilize this standard. Seventh, the Committee invited the American Bar Association Committee to submit their proposal for an administrative appeals process to be utilized in the UUPA. Additionally, other key issues were deferred. The next committee meeting is scheduled for February 27 28, 2015 in Washington, D.C., where a new, first draft of the 2016 UUPA may be presented. Undoubtedly, language in the UUPA will continue to evolve, and Ryan will continue to monitor and report on it and other UUPA developments. Uniform Law Commission Developments Committee to Revise the Uniform Unclaimed Property Act (UUPA) The Uniform Law Commission s Drafting Committee to Revise the UUPA ( Committee ) met on November 7 8, 2014, in Washington, D.C. A large number of stakeholders were in attendance. However, during this meeting, there was a distinct shift from stakeholder R Y A N. T A X R y a n A b a n d o n e d a n d U n c l a i m e d P r o p e r t y 8

9 Our Team Collectively, the Ryan Abandoned and Unclaimed Property group consists of fully dedicated practitioners who bring more than 300 years of collective unclaimed property experience to our clients. Our professionals include certified public accountants (CPAs)*, attorneys**, certified fraud examiners, forensic accountants, statisticians, and state unclaimed property auditors. We provide assistance to our clients including, but not limited to, preparation for unclaimed property audits, voluntary disclosure agreements, assessment of potential unclaimed property exposure, unclaimed property M&A risk assessment activities, preparation of unclaimed property reports, unclaimed property policies and procedures, asset recovery, assistance regarding gift card restructuring considerations, and search and location. *Ryan is not a CPA firm. **Ryan is not a law firm. Contacts Mark A. Paolillo Principal and Practice Leader Ryan Abandoned and Unclaimed Property mark.paolillo@ryan.com Tim McDonald Director, Ryan Client Services tim.mcdonald@ryan.com Susan Han Principal susan.han@ryan.com Sam Schaunaman Senior Manager Newsletter Editor sam.schaunaman@ryan.com Noel E. Hall, Jr. Principal noel.hall@ryan.com Christa DeOliveira Manager Newsletter Assistant Editor christa.deoliveira@ryan.com Jeff Henshall Principal jeff.henshall@ryan.com