Unclaimed Property E-Book

Tracey L. Reid

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Veröffentlichungsjahr: 2009

Beschreibung

Unclaimed Property: A Reporting Process and Audit Survival Guide breaks the unclaimed property process down into manageable steps that you can either handle on your own or with the help of a professional in the field. Author Tracey Reid presents a thorough introduction to every aspect of unclaimed property laws, clarifying what unclaimed property is, how the escheat laws apply to your particular circumstance, and how you can bring your enterprise into compliance with the least amount of manpower and cash outlay possible.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

CHAPTER 1

MYTH 1: “WE DON’T HAVE UNCLAIMED PROPERTY.”

MYTH 2: “UNCLAIMED PROPERTY COMPLIANCE IS VOLUNTARY.”

MYTH 3: “IF I DON’T HAVE RECORDS, THE AUDITOR CAN’T DETERMINE ANY UNCLAIMED ...

MYTH 4: “I AM ONLY LIABLE FOR REPORTING UNCLAIMED PROPERTY TO STATES WHERE I ...

CHAPTER 2

PURPOSE OF THE UNCLAIMED PROPERTY LAWS

TERMINOLOGY

WHAT TYPES OF PROPERTY CAN BECOME ABANDONED PROPERTY?

WHEN DOES AN ITEM BECOME UNCLAIMED PROPERTY?

STATES’ RESPONSIBILITIES

HOLDER’S RESPONSIBILITIES

CHAPTER 3

WHY YOU MUST REPORT YOUR UNCLAIMED PROPERTY

DETERMINING YOUR LIABILITY

WHERE YOU MAY HAVE A REPORTING OBLIGATION: JURISDICTION

DUE DATES, DUE DILIGENCE, AGGREGATES, AND DORMANCY PERIODS

PREPARING THE REPORT

CHAPTER 4

GATHER YOUR RECORDS

IDENTIFY YOUR COMPANY’S UNCLAIMED PROPERTY TYPES

DETERMINING YOUR LIABILITY

YOU DO NOT HAVE ALL OF THE RECORDS FOR THE AUDIT PERIOD: DETERMINING THE BEST ...

DO YOUR DUE DILIGENCE

COMPLETE THE FINAL SUMMARY REPORT AND PAY THE MONEY!

CHAPTER 5

AUDIT TARGETS: ARE YOU NEXT?

OFFENSE—CONTACT THE STATES FOR A VOLUNTARY DISCLOSURE AGREEMENT

DEFENSE—YOUR COMPANY HAS RECEIVED NOTIFICATION OF AN AUDIT: DO NOT IGNORE THE LETTER!

AUDIT TIMELINE

AUDIT BEST PRACTICES

POST-AUDIT CLEANUP

CHAPTER 6

COMPLIANCE TIMELINES: DUE DILIGENCE, AGGREGATES, AND DORMANCY PERIODS

RECORD RETENTION POLICIES

MANAGING YOUR EXCEPTIONS AND EXEMPTIONS

INTERNAL CONTROLS: CHECKS AND BALANCES

INTERNAL AUDITS

HANDLING A DESK AUDIT OR FISHING CALL FROM A STATE AUDITOR’S OFFICE

CHAPTER 7

BUSINESS-TO-BUSINESS EXEMPTIONS

CURRENT BUSINESS RELATIONSHIP

GIFT CERTIFICATES/GIFT CARDS

GIFT CARD CORPORATIONS

DORMANCY FEES

CUSTOMER CREDITS/CREDIT BALANCES

TANGIBLE PERSONAL PROPERTY

CHAPTER 8

INSURANCE

BANKING

HEALTH CARE

OIL, GAS, UTILITIES, AND ENERGY

RETAIL

CHAPTER 9

U.S. LAWS ON FOREIGN ESCHEAT

OTHER NATIONS’ LAWS

CHAPTER 10

LACK OF NEXUS AS AN AUDIT DEFENSE

DORMANCY FEES AND SERVICE CHARGES

EXPIRATION DATES AND OTHER CONTRACTUAL LIMITATION PERIODS

UNCLAIMED EMPLOYEE BENEFITS

UNCLAIMED PROPERTY OF BANKRUPT HOLDERS

MERGERS AND ACQUISITIONS: SUCCESSOR LIABILITY

ASSET ACQUISITIONS

CHAPTER 11

PSYCHOLOGY OF FRAUD

MITIGATING THE RISK OF UNCLAIMED PROPERTY FRAUD

CHAPTER 12

LEGISLATIVE TRENDS

NON-LEGISLATIVE TRENDS

CONCLUSION

APPENDIX A - XYZ Corporation: Unclaimed Property Holder Questionnaire

APPENDIX B - Sample Policy and Procedure Manual

APPENDIX C - Sample Due Diligence Letter

APPENDIX D - State Unclaimed Property Office Contacts

APPENDIX E - Sample Audit Records Request

APPENDIX F - Summary of Current Gift Certificate Law

Index

This book is printed on acid-free paper.

Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication DataReid, Tracey L. Unclaimed property : a reporting process and audit survival guide / Tracey L. Reid. p. cm. Includes index.

eISBN : 978-0-470-44063-6

1. Abandonment of property—United States. 2. Escheat—United States. 3. Abandonment of property—United States—Auditing. I. Title. KF562.R45 2008 346.7304’7—dc22 2008017692

To my husband Anthony for all his love, support, and the creative ways that he distracted our kids; and to the rest of my family for their encouragement, faith, and free babysitting services: Thank you

Preface

For many of my clients, the first time they heard of “unclaimed property” was when they were notified that their company had been chosen for an unclaimed property audit and needed to dig out ten years of old financial records to present to an auditor for review. Unclaimed property law enforcement has recently become the darling of politicians across the country who are looking for ways to increase their states’ revenues without instituting new taxes that alienate their voters. While unclaimed property laws have been on the books in all states for many years, only in the past decade have those laws really been enforced against businesses outside the banking industry. To speed up the collection of unclaimed property, state laws are changing rapidly every year. While it can be almost impossible to understand the intricacies of all of the different state laws, it IS possible to bring your company into compliance with the escheat laws you are subject to.

I have been teaching unclaimed property seminars across the country for the last several years, and the attendees always ask the same question: “Where can I get a book on unclaimed property to help me get my company into shape?” Unfortunately, in the past, I’ve never had a good answer for them. There are several very formidable and well-researched legal treatises available on the subject of unclaimed property law, but there has been no practical guide geared toward the over-extended businessperson who just wants to make sure his or her company is compliant—until now.

This book is not intended to make you an expert on unclaimed property law. It is intended to help you understand the nature of the escheat laws and how they affect your company’s bottom line. I will help you calculate your company’s actual unclaimed property exposure; come up with a plan to get into compliance, and guide you through a planning process that will keep your company compliant into the future. My goal is to prepare you to handle any unclaimed property enquiry that will come across your desk, whether it is a former employee looking for a “lost” paycheck, your internal auditor questioning how you handle outstanding checks, or a state administrator requesting information on your company’s unreported unclaimed property. I will break the process down into manageable steps that you can handle either on your own or with the help of a professional in the field. Unclaimed property compliance can become just another process in your company, rather than a ticking time bomb buried in your financials, ready to detonate upon audit.

This book is not just for escheat beginners. If you are already reporting unclaimed property and have systems in place, this book can help you conduct your own checkup to find areas that may need improvement. I will also address how to deal with unclaimed property audits, something that can and will happen to every business, whether you have never reported or have been in compliance with the escheat laws since the day your business opened its doors. I will provide you with state contact information and a few charts that my clients have found helpful in the past. This book includes sample due diligence letters and a sample policy and procedures manual to get you started in your own departments. As changes occur, I will post updated charts on my Web site for your reference. I hope that this manual will be a tool you reference over and over again when you have questions about unclaimed property.

If you have any further questions, feel free to contact me at [email protected] or to post a question in our chat room at www.reidunclaimed.com.

CHAPTER 1

Four Myths of Unclaimed Property

MYTH 1: “WE DON’T HAVE UNCLAIMED PROPERTY.”

All companies have unclaimed property. If your company writes checks; issues gift certificates or gift cards; writes employee expense reimbursement checks; or issues vendor credits; you have unclaimed property. If you write checks, you have unclaimed property until every single one is cashed. If you issue credits in your accounting system, you have unclaimed property until every credit is used. Since unclaimed property is generally defined as tangible or intangible property that has gone unclaimed by its rightful owner, every check, vendor credit, gift certificate, and payroll electronic transfer is unclaimed property until it is cashed, offset, redeemed, or accepted into a valid account. Every business has unclaimed property. This book will help you answer the important question: “Is my outstanding unclaimed property reportable to any state unclaimed property office?”

MYTH 2: “UNCLAIMED PROPERTY COMPLIANCE IS VOLUNTARY.”

Unclaimed property compliance is mandatory in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, and Guam. Several other countries also have unclaimed property laws (see Chapter 9, Foreign Unclaimed Property Laws). Compliance does not just mean you are reporting the unclaimed property that you know you have. Compliance, in some states, means that you are filing a report telling the states that you have no unclaimed property that is reportable that year. Several states, such as Ohio, require that every business that is registered to do business in that state file an unclaimed property report every year, even if they have no property to turn over for that period. This is called a negative report or a zero report. Not every type of business is required to report unclaimed property in all of the U.S. states and territories, but all of these governing bodies are collecting unclaimed property from some businesses. For example, the escheat laws in Guam only govern dormant bank accounts, but every bank that does business in Guam or has customers with a last known address of record in Guam could be subject to reporting unclaimed property to that territory. I will help you pinpoint all of the areas where your company is required to file unclaimed property reports in this book.

MYTH 3: “IF I DON’T HAVE RECORDS, THE AUDITOR CAN’T DETERMINE ANY UNCLAIMED PROPERTY LIABILITY FOR MY COMPANY.”

In the absence of records, auditors are permitted to use estimation techniques to determine a holder’s unclaimed property liability. Many of my clients have historically followed the federal government’s seven-year tax record retention policy for all of their financial records. For unclaimed property purposes, this gets them into a heap of trouble. Unclaimed Property is not a tax. It is a property law. As such, it is generally not subject to any statute of limitations. Only a few states provide for any statute of limitations, and even then the statute only applies if the holder properly reported to the correct government agency in a timely manner. The typical unclaimed property audit covers a period of ten to fifteen years, which is much longer than the federal government’s tax record retention period. If a holder, like most businesses, does not have financial records for the entire audit period, auditors use the most current records to project what the old records might have looked like. If your company has had recent periods of growth, but was smaller 15 years ago, today’s records are going to produce a much inflated picture of what your historic unclaimed property reporting liability actually was. There are several ways to estimate your unclaimed property in the absence of actual records, and you can negotiate with auditors to use the projection method most beneficial to your company’s situation. We will discuss how to handle your records (or lack of them) later in Chapter 4.

MYTH 4: “I AM ONLY LIABLE FOR REPORTING UNCLAIMED PROPERTY TO STATES WHERE I CONDUCT BUSINESS (I.E., HAVE NEXUS).”

Unclaimed property is not a tax! There is no nexus requirement for your company to be subject to unclaimed property reporting. The U.S. Supreme Court has laid out the reporting pecking order for unclaimed property, and it has absolutely nothing to do with where your company is doing business. If you have an address in your records, then the last known address of the property’s owner determines where it must be reported. Where your company is incorporated plays a part, but only if you do not have addresses for the true owner of the escheatable property. As companies do not always do business in the states where they are incorporated (i.e., Delaware), nexus can have absolutely NOTHING to do with your unclaimed property reporting obligations. We will address how you can get a handle on your unclaimed property reporting obligations in Chapter 6.

Why all the fuss about unclaimed property? As of 2005, a total of $20 billion worth of unclaimed property was in state coffers, and only about 20% of that money is ever returned to the true owners. This means that the states get both the benefit of interest earned on the assets being held and, in some cases, the actual escheated property after a period of years. Unclaimed property is the fastest growing source of state revenue—and it’s increasing 20% per year!

The country’s state unclaimed property administrators estimate that only 10% to 20% of U.S. businesses currently comply with escheat laws. That leaves 80% to 90% either unaware of their reporting obligations or too overwhelmed by the process of coming into compliance to know where to begin. First-time audits of previously noncompliant companies typically reach back a minimum of 10 years, but some reach back as far as 20 years. In most states, there is no statute of limitations for unclaimed property compliance. Filing a negative or zero report does NOT start any statute of limitations running to limit your company’s exposure. You may think, for example, that you are safe from audits because you are compliant with the unclaimed property laws in your incorporation state, but do not count on it! States are joining forces and sending audit teams all over the country with the authority to audit on behalf of multiple states. Many states are signing contracts with third-party audit firms that do not get paid their 10% to 15% unless they find unclaimed property owing to any of the 31 states with which they have agreements. And your audit threat is not limited to being fingered by a state auditor. States have passed “whistle-blower” laws to encourage individuals with knowledge of a company’s noncompliance to come forward and share the wealth. A whistle-blower typically gets 10% of what the state collects in an unclaimed property audit as a reward. If you have any disgruntled ex-employees, or current employees who want to retire early on your dime, you need to get into unclaimed property compliance.

Keeping track of the unclaimed property compliance is a full-time job for most businesses. There is currently no uniform set of laws that apply to all states; each state, district, or territory has its own laws, which amounts to 54 different jurisdictions, including all 50 states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands! Do you have time to keep track of the legislative changes every year? Do you have the resources to assign this task to someone in your organization?

When state revenues go down, unclaimed property audit efforts go up. Every company registered to do business will eventually be contacted for an unclaimed property audit, but early preparation can make all the difference in what that audit ultimately costs. While many businesses make decisions for their company’s future based on tax laws, very few, if any, plan their growth around unclaimed property laws—nor should they. This book is meant to help businesspeople understand what unclaimed property is, how the escheat laws apply to their particular circumstances, and how they can bring their enterprises into compliance with the least amount of manpower and cash outlay possible. You can comply with unclaimed property laws without going either crazy or bankrupt, and I will show you how.

CHAPTER 2

What Is Unclaimed Property?

Unclaimed property laws might be new to you, but they have been around for millennia. The ancient Romans had officers whose duty was to collect the property, on behalf of the emperor, of persons who died without heirs or legatees. The English, during the reign of William the Conqueror, instituted laws that claimed property, both real and personal, on behalf of the Crown when someone died without heirs or committed certain types of crimes. Escheat was specifically mentioned in England’s Magna Carta, written in 1215. When our forefathers came to the colonies, they brought their traditional law, English common law, with them.