Voluntary Disclosure Agreements Part One : Navigating the Process. UPPO Presentation Disclaimer

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1 Voluntary Disclosure Agreements Part One : Navigating the Process Michelle A. André -Tre Towers Advisory Group, LLC Angela Gholson KPMG LLP UPPO Presentation Disclaimer Use of the Unclaimed Property Professionals Organization, Inc., (UPPO) name or copyrighted materials in this presentation does not constitute an endorsement by UPPO of a member, vendor, product or service. The content represents the opinions of the author and not necessarily those of UPPO. This information is not intended as legal advice and should not be used to replace the advice of legal counsel. UPPO Antitrust UPPO has a policy of strict compliance with federal antitrust laws. UPPO members and/or meeting attendees cannot come to understandings, make agreements, or otherwise concur on positions or activities that in any way tend to raise, lower or stabilize prices or fees. Members and/or attendees can discuss pricing models, methods, systems, and applications, as well as certain cost matters that do not lead to an agreement or consensus on prices or fees to be charged. However, there can be no discussion as to what constitutes a reasonable, fair or appropriate price or fee to charge for any service or product. Information may be presented with regard to historical pricing activities so long as such information is general in nature and does not include data on current prices or fees being charged in any trade area. Any discussion of current or future prices, fees, discounting, and other terms and conditions of sale, which may lead to an agreement or consensus on prices or fees to be charged, is strictly prohibited. 1

2 CPE Credit CPE credit is available at this conference. However, NASBArules require proof you attended the sessions. For UPPO to provide verification of attendance, you MUSTbe scanned in ANDout of each session to be eligible to receive credit(s). Please see the room monitor(s) at the back of room to have your name badge scanned. Intro/Agenda Why Consider a Voluntary Disclosure Agreement (VDA)? What is a VDA? Typical VDA Terms Pros and Cons of a VDA Review of Specific States VDA Programs Is a VDA Appropriate for Your Company? Typical Formal VDA Steps Key Points Why VDAs An approach to get into compliance while mitigating risks and managing liabilities Characteristics of a company that may benefit from a VDA First-time reporter Reported some but not all property types Reported in some but not all states Recent acquisition 2

3 What is a VDA? Often called Voluntary Compliance Agreement (VCA) As the term indicates, it is a voluntary process through which a company reports past due unclaimed property Signed contractual agreement Self review of certain books and records for an agreed period of time Requires evaluation of all potential areas of unclaimed property including third-party-administered programs Promised future compliance VDAs (formal or informal) are available in most states, although the process varies by state Common VDA Terms Lookback the period of time that will be covered by the VDA Interest and penalty Timeframe to complete the process Not under audit or notified of audit May be limited to non-filer Confidentiality State may reserve right to audit submission for a period of time Agreement can be voided if representations or liability calculated is proved to be fraudulent Pros and Cons of a VDA Pros Waiver of penalties and/or interest Limited lookback Potential closure of periods to audit Control over the self-review process (versus an audit) Cons May require significant company (or external) resources to complete VDA requirements in allowed time State may pierce agreement (e.g., still audit) if any terms are not met Prospective reporting/compliance requirement now exists (negative reporting states) 3

4 State-Specific VDAs It s All About Formality and Complexity States with Formal, More Complex Programs Massachusetts Complete self audit for any/all property types/records for 9 Report Years Complete report package, including detailed written narrative report of all the steps, procedures, and records, and submit to state for review Do not submit filing or payment until report package is accepted by state If rejected, it is possible to come to agreement with the state on additional requirements for acceptance Terms Abatement of interest and penalties; state will not waive right to audit States with Formal, More Complex Programs New Jersey Submit letter via mail requesting VDA participation, including Power of Attorney State will review request and provide acceptance Holder to execute VDA and include a report package which will include detailed methodology report with supporting schedules for 10 Report Years Do not submit filing or payment until report package is accepted by state Timing Per Agreement, process should be completed within 30 days from its signing; however, the state typically allows for 6 months before requiring any formal request for an extension Terms Abatement of penalties; one time interest charge at rate of 2.33%; waiver of audit rights on reported property for reported periods 4

5 States with Formal, More Complex Programs New York Submit original signed VCA and request for participation to the state Signed VCA will be returned by the state if accepted into Program Lookback to issue year 1992 Report package must include detailed methodology report and supporting schedules State will typically request Excel detail of all items (for all states) of unclaimed property evaluated in self-review, including resolved items, to confirm all New York-sourced property is included State will typically request supporting documentation proving the remediation of a sample of New York-addressed property to confirm remediation was sufficient Management representation letter attesting to available records is typically requested Timing Report package due within 6 months of state signing VCA; written requests must be submitted to obtain extensions Terms Abatement of interest and penalties; state reserves right to audit holder within two years from the later of the date of the VDA or date of payment Florida Complete, execute and return the VDA and Holder Information Form via Upon receipt of required information, the Bureau of Unclaimed Property will review and make approval determination If approved, agreement will be signed and a Final Order will be entered by the department binding the department and the holder to the terms and conditions of the agreement If not approved, a letter will be sent to the holder explaining the reason(s) for disallowance Request a UPID (Unclaimed Property Identification Number) from the state Holder s UPID and FEIN is required to create a DFS-UP-111 State Cover Form on the state s website Timing Within 3 months of the date of the Final Order, the holder is obligated to submit a detailed plan to the Bureau of Unclaimed Property Terms 10 report year lookback; waiver of interest and penalties; state reserves right to audit Georgia Submit VCA participation request via State will send VCA Submit a brief summary of work performed and basic holder information Submit reporting package Executed VDA will be returned by state Terms 10 report-year lookback; waiver of interest and penalties; state reserves right to audit 5

6 Iowa Submit the VDA/Holder Information via , mail, or fax Holder will receive notification of the status via State will review If approved, state will sign the VDA and return to holder; if not approved, holder will be notified in writing as to the reasoning Timing Within 60 days of approval, holder must submit its VDA work plan; report must be submitted within 6 months of submitting the VDA Terms 13 report-year lookback; waiver of interest and penalties; state reserves right to audit Nevada Send VDA participation request via , fax, or mail If approved, the state will send a packet Within 30 days of receiving the packet, submit the completed and signed 3-page VDA form, Proposal of Reporting Method Worksheet, and current written unclaimed property reporting and remittance policies and procedures Upon receipt, state will review If accepted, the state will send a signed copy of the approved admittance to the VDA program Submit reporting package Terms Minimum 7 report year lookback; waiver of interest and penalties; state reserves right to audit Texas Submit VDA participation request via or mail If approved, State will send a VDA packet that will include two documents to be completed (Form AP-114 Texas Nexus Questionnaire and Texas Voluntary Disclosure Agreement) and assign a VDA number Note: Texas Nexus Questionnaire could create registration/filing requirements for areas beyond unclaimed property Submit Form AP-114 and VDA to state State will return executed VDA Submit reporting package with VDA within 180 days of executed VDA lookbackis 10 report years State will call with questions; otherwise consider VDA closed Terms Waiver of interest and penalties; state reserves right to audit 6

7 Virginia Submit Request for Participation Voluntary Compliance application form via or mail State will review and approve by returning the signed application and assigning a participation number Submit VCA and General Business questionnaire to the state (both must be signed) State will return executed VCA and provide Compliance Report cover sheet Submit reporting package within 6 months of the date the application for voluntary compliance was received State will confirm acceptance of the report by signing the Voluntary Compliance application form Terms 10 report-year lookback; waiver of interest and penalties; state reserves right to audit States with Informal (or No) Programs Typically all that is required is either a simple letter requesting a VDA or submission of a first time filing along with a letter requesting abatement of interest and penalties Some of the states include:alaska, Connecticut, Kentucky, New Mexico, South Dakota, and Washington California-does not offer any type of VDA (formal or informal) While requests for abatement of interest and penalties can be made with first-time filings, it is unlikely that interest will be abated; Penalties generally are not imposed on voluntary filings (as opposed to audit assessments) Wisconsin-As a result of the transfer of the unclaimed property function to the Department of Revenue, it has been indicated that Wisconsin currently does not offer a VDA (formal or informal) but that a request for abatement of interest and penalties could be made with first-time filings Is a VDA Appropriate? Company risk tolerance level Does the company want to risk an audit? The lookback period may be longer under an audit versus VDA New Jersey s audit period is 16 report years vs. 10 years for VDA Delaware audit period is 28 report years (as of March 1, 2014) if the audit is completed by June 30, 2015 (depending on when the audit began) vs. 16 years for VDA (under the Secretary of State VDA program if signed after June 30, 2013 but before June 30, 2014) 7

8 Is a VDA Appropriate? Holder disclosure may be required to participate in the program Full disclosure is required for all potential property, not just for a few property types Time constraints process must be completed within a specific timeframe after the agreement is signed Holder must determine at what point they want to initiate the VDA process What level of resources (internal and external) is available to be committed to the process Extended self-review period may result in audit Typical Formal VDA Steps Administratively assemble the team (internal and external) that will be involved in the process Project lead All impacted functions Accounts Payable Payroll Accounts Receivable IT Legal Tax Typical Formal VDA Steps Determine which entities will be included in the VDA Conduct interviews to develop an understanding of the company s business operations, state(s) of incorporation, accounting policies and procedures Obtain copy of record retention policies to understand record availability Evaluate available record format and accessibility Electronic Paper Onsite vs. offsite Identify key states and VDA requirements Incorporation Headquarters Presence in the state Lookback period Time to complete VDA Due diligence requirement 8

9 Typical Formal VDA Steps Obtain agreement and submit for legal department review Some states are reluctant to make changes to their standard agreement Execute VDA or apply for participation in the program for key states Note date VDA package is due Make sure due diligence requirements are considered in light of the VDA package due date Some states will grant extensions Obtain detailed records Chart of accounts Trial balance Outstanding checklists Void check listings Bank reconciliations Aged credit balance reports Journal entries Typical Formal VDA Steps Conduct detailed analysis to identify potential dormant items Identify and apply mitigation arguments Seek state input on questionable issues Calculate liability by property type, state, and year This will be discussed in detail in the next session Determine whether VDA should be pursued in additional states Conduct required due diligence Revise calculated liability based on due diligence responses Prepare liability calculation methodology report Typical Formal VDA Steps Assemble VDA workpapers Submit VDA package in the required format by the due date (or extended due date) Some states will void the VDA if the VDA package is not submitted in a timely manner Many states will not accept payment until after the information submitted is reviewed and agreed to by the state State review may take several months 9

10 Typical Formal VDA Process During the review process some states request additional documentation or clarification Once agreement is reached, some states require the preparation of an actual report listing all past due property Depending on when the process is completed, the state may require the inclusion of an additional year of property Some states require submittal of written unclaimed property compliance policy and procedures to ensure the company has a process in place to comply going forward Payment based on the final agreed-upon amount A letter may be issued requesting payment within 30 days Electronic payment may be required Key Points Keep state apprised during the self-review process Avoid aggressive reporting positions Disclose where records are limited Negotiate and agree on assumptions If under audit in a non-vda state consider implications of the VDA positions taken Retain all records used to develop the VDA calculated liability, the executed agreement, any demand for payment or other documentation, and records demonstrating payment was made (e.g., copy of cashed check) File on time and stay in compliance Use findings from the VDA to institute/augment compliance process VDAs can be a beneficial way to get into compliance BUT do it right! Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. 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. These materials are copyrighted to the company of the presenter presenting them. 10

11 Questions Michelle A. André Managing Member Tre Towers Advisory Group, LLC (703) ANGELA P. GHOLSON Tax Managing Director KPMG LLP Tel