Unclaimed Property and Corporate Compliance News

Due Diligence Requirements for Unclaimed Property Holders

Holder corporations must report unclaimed property, such as uncashed checks, outstanding accounts receivable credits, and gift cards, to the proper state upon the expiration of the dormancy period. Almost every state and other jurisdiction that collects unclaimed property requires holders to first attempt to contact owners before reporting the property to the state. This process of contacting the owners is often referred to as "due diligence" and requires holders to send letters to the address of record on the holder's books and records.

Kentucky: Do We Need a State Treasurer?

Update January 25, 2012

The Kentucky State Treasurer, whose office administers the state unclaimed property office, is still under fire by state legislators intent on eliminating the office. The current bill made its way out of the Senate State and Local Government committee today.

Additional Coverage: WFPL: Amendment to Eliminate Treasurer Clears Senate Committee

Originally Posted: January 3, 2012

Happy New Year!

New York Voluntary Compliance Program

New York ComptrollerAdd New York to the list of states that are actively seeking companies that have not filed unclaimed property reports. Letters have recently gone out to several businesses that have not filed unclaimed property reports in New York, informing the company of their filing requirements.

California Sending Escheat Notices Now

Unlike most states, California has a two-step unclaimed property reporting process. In step one, holder companies conduct their own due diligence, sending letters to individuals and companies that have abandoned property with the reporting company. After their due diligence process has been completed, the holder company reports to California a list of properties that the company intends to remit to the state.

Unclaimed Property Audit Triggers

While the states generally will not disclose how they choose the targets of upcoming unclaimed property audits, experience shows us certain trends that increase the likelihood of audits.

Michigan Voluntary Disclosure Program

January 11, 2012 Update: The Michigan Bar sent out the attached alert to members (lawyers) of the State Bar of Michigan: Membership Alert Pertaining to Treasury Notice The alert contains a redacted copy of the notice as sent out by the Michigan Department of Treasury.

The Michigan State Bar is concerned about that the notice implies a mandatory duty to report, even in the absence of unclaimed property reporting and no negative report requirement. Furthermore, the Bar is concerned about the ten year look-back period even though no such specific statutory authority exists.

Initiation of a Delaware Unclaimed Property Audit

Your CFO or CEO just received a letter from the State of Delaware that notifies you of their intent to "examine the books and records . . . to determine compliance with the Delaware Escheat laws." The letter goes on to say that the scope of the examination will be for 1981 through the present, and asks that all records be retained despite corporate record retention policies. It also specifies that Kelmar Associates will be conducting the audit on behalf of Delaware.

Your CEO has handed this off to you, in accounting or legal. You have no idea about unclaimed property or your company's compliance history. What's next?

Breaking News: New Jersey Gift Card Decision - 3rd Circuit Affirms District Court

The Third Circuit issued a decision in New Jersey Retail Merchants Association v. Sidamon-Eristoff today, January 5, 2012. The case is the consolidated appeal of several cases all relating to the New Jersey statute on the escheat of unused gift cards bought in New Jersey. Today, the Third Circuit affirmed the District Court's decision on (1) the retroactive application of gift cards sold in New Jersey prior to the new statute; (2) the place of purchase presumption for gift cards sold in New Jersey; and (3) the collection of the purchaser's name and address at the time of sale of new gift cards. The Court affirmed the decision to issue a preliminary injunction on the retroactive application and the place of purchase presumption while denying the injunction for the new data collection requirements.

Delaware Proposes Changes to Unclaimed Property Regulations

Delaware Department of Finance has proposed two new regulations relating to the reporting of unclaimed property.

The first proposed regulation related to procedures relating to audit appeals. In July 2010, the Delaware legislature passed amendments to Section 1156, providing for review and appeals procedures for holders that did not agree with the Audit Manager's findings under audit. The first proposed regulation relates to this new law.

Royalties Are Subject to Unclaimed Property Laws

Whether they are mining or gas royalties or music related royalties, royalty payments to owners that remain uncashed are subject to state unclaimed property laws. Furthermore, uncashed royalty payments must be escheated to the appropriate state and cannot remain with a membership organization, such as the Screen Actors Guild, even if such funds benefit the membership at large. (Screen Actors Guild v. Cory, 91 Cal.App.3d 111 (1979))

Vee Jay Limited Partnership is finding out the hard way as they are subject to a lawsuit filed last week in the Northern District of California. The R&B group known as The Dells have sued for amounts in excess of $75,000 for royalties.

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