Unclaimed Property - Eversheds Sutherland · This communication is for general informational...
Transcript of Unclaimed Property - Eversheds Sutherland · This communication is for general informational...
![Page 1: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/1.jpg)
© 2019 Eversheds Sutherland (US) LLPAll Rights Reserved. This communication is for general informational purposes only and is not intended to constitute legal advice or a recommended course of action in any given situation. This communication is not intended to be, and should not be, relied upon by the recipient in making decisions of a legal nature with respect to the issues discussed herein. The recipient is encouraged to consult independent counsel before making any decisions or taking any action concerning the matters in this communication. This communication does not create an attorney-client relationship between Eversheds Sutherland (US) LLP and the recipient. Eversheds Sutherland (US) LLP is part of a global legal practice, operating through various separate and distinct legal entities, under Eversheds Sutherland. For a full description of the structure and a list of offices, please visit www.eversheds-sutherland.com.
Through the Looking GlassUnclaimed Property
Tuesday, February 26, 2019
Mary Jane Wilson-Bilik Wilson Barmeyer Phillip Stano John Allen Zumpetta
![Page 2: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/2.jpg)
Eversheds Sutherland
Mary Jane Wilson-Bilik
Presenters
PartnerWilson BarmeyerPartner
Phillip StanoPartner
2
John Allen ZumpettaAssociate
![Page 3: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/3.jpg)
Eversheds Sutherland
Agenda
─ Setting the Stage “UP”
─ Rapidly Changing Laws, Issues and Trends for Holders
─ Priority Rules and Jurisdictional Distortion
─ Hot Topics and Trends
3
![Page 4: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/4.jpg)
Eversheds Sutherland
Setting the Stage “UP”
![Page 5: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/5.jpg)
Eversheds Sutherland
States Want the Money
5
States holding ›$58 Billion
UP Proceeds Close State Budget Shortfalls$
2000 2017
![Page 6: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/6.jpg)
Eversheds Sutherland
Aggressive Auditors
─ Aggressive Audit Tactics• Receive 10% to 15% • 15+ year lookback• Audits can last 5+ years
6
![Page 7: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/7.jpg)
Eversheds Sutherland
Audit Trends
─ Auditor Musical Chairs• State reassignment of audits• Competition for results• New third-party auditors
─ New States Initiating Audits• States other than Delaware taking the lead• Single and multi-state audits
7
![Page 8: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/8.jpg)
Eversheds Sutherland
UP Lingo in a Nutshell
─ Holder vs. Owner
─ Dormancy Period
─ Abandoned Property
─ Priority Rules
─ Derivative Rights
8
![Page 9: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/9.jpg)
Eversheds Sutherland
Rapidly Changing Laws, Issues and Trends for Holders
![Page 10: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/10.jpg)
Eversheds Sutherland
Legislative Trends – The Uniform Acts
─ Most state laws are modeled after a version of the Uniform Unclaimed Property Act (1966, 1981, 1995)
─ A “Revised Uniform Unclaimed Property Act” was promulgated in 2016• Many states are considering
comprehensive legislation• The American Bar Association released
its own model act
10
![Page 11: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/11.jpg)
Eversheds Sutherland
2016 Uniform Act – Adoption Trends
1954/1966 Act 1981 Act 1995 Act 2016 Act
11
Enacted as of February 2019• Delaware*• Utah• Tennessee• Illinois*• Kentucky
20 States
10 States
?
*Enacted, but with significant changes from the 2016 Uniform Act
![Page 12: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/12.jpg)
Eversheds Sutherland
Enacted the 2016 Uniform Act (in whole or in part)
Legislation introduced 2017 – 2019
States Considering the 2016 Uniform Act
12
![Page 13: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/13.jpg)
Eversheds Sutherland
2016 Uniform Act – Issues
13
Helpful to Holders Unhelpful to Holders
─ Broader coverage of issues; more clarity in many areas
─ 5-year statute of limitations; 10-year statute of repose
─ Appeal process for audits
─ Confidentiality and data security for audits
─ No express adoption of derivative rights doctrine
─ Use of contingency fee auditors permitted
─ No exemptions for business-to-business, de minimis amounts, or foreign-owned property
─ Contractual anti-limitations provision
─ Retroactive transitional provision (10 years)
![Page 14: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/14.jpg)
Eversheds Sutherland 14
New Property Types Excluded─ Roth IRAs
─ Other tax deferred accounts
─ Stored value cards
─ Payroll cards
─ Virtual currency
─ Loyalty cards (unless for cash)
─ Game-related digital content
─ Worthless/nontransferable securities
Clarified Unresolved─ Life insurance
─ Securities
─ Gift cards
─ Merchandise credits
2016 Uniform Act – Issues
![Page 15: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/15.jpg)
Eversheds Sutherland
─ NAUPA pursuing anti-business amendments• Escheat of securities based on inactivity (instead of returned
mail)• Payroll cards subject standards for “wages” (1-year escheat)• Indefinite statute of limitations (longer lookback)• Others
─ Holders also seek amendments• Industry-specific• Exemptions (confirm or expand)• Oppose retroactivity• Others
2016 Uniform Act – Legislative Battles Ahead
15
![Page 16: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/16.jpg)
Eversheds Sutherland
Priority Rules and Jurisdictional Distortion
![Page 17: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/17.jpg)
Eversheds Sutherland
Priority Rule Primer
17
Federal common law “priority rules” for unclaimed property established by the U.S. Supreme Court
Impact: The state of incorporation has nationwide jurisdiction where address information is not available.
First Priority State Last known
address of the owner
Second Priority State
The company’s state of
incorporation
1.
2.
![Page 18: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/18.jpg)
Eversheds Sutherland
Which State Has “First Priority”?
Kelmar Exam Overview
“[A] valid address is an address sufficient for mailing correspondence through the United States Postal Service”
18
2016 Uniform Act
“[A]ny description, code, or other indication of the location of the apparent owner which identifies the state”
V.
![Page 19: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/19.jpg)
Eversheds Sutherland
Delaware v. Pennsylvania (arguing to reconsider Texas v. New Jersey)
─ Dispute over priority rules for MoneyGram “official checks”
Delaware (state of inc.)v.
20+ States (state where issued)
─ MoneyGram escheated all funds to DE, but other states claim first priority
─ May issue be decided on narrow grounds:
• Abandoned Money Orders and Traveler’s Checks Act, 12 U.S.C. §§ 2501-2503
─ But PA is also advocating to change the priority rules
19
Delaware v. 20+ States (U.S. Supreme Court)
![Page 20: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/20.jpg)
Eversheds Sutherland
Gift Card Escheat Map
20
Gift Cards
*Map applies only to traditional closed-loop gift cards and does not address other card types. The map provides only a general overview of state unclaimed property laws and does not reflect all details needed for compliance with any particular state law.
![Page 21: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/21.jpg)
Eversheds Sutherland
Gift Cards and False Claims Act
Marathon Petroleum v. Delaware (3rd Cir. 2017)
‒ Delaware parent company under audit‒ Ohio subsidiaries issue gift cards
Held:─ Federal priority rules apply to disputes
between a private entity and a state
─ Validated the concept of intercompany planning structures for gift cards
─ Delaware may conduct a limited audit to exam the structures
21
Delaware v. Card Compliant & 20+ Retailers (Del. Superior Court 2018)─ Gift cards issued by a third-party
─ Delaware alleged the retailers were the true holders
─ Filed under the Delaware False Claims Act
─ Most retailers settled
Verdict:─ Jury returned a verdict against Overstock.com
─ The third-party structure was invalid; UP reports were “false claims”
─ Overstock must remit unredeemed gift cards and pay treble damages under the False Claims Act
![Page 22: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/22.jpg)
Eversheds Sutherland
1. False Claim Act & Litigation Risk• A potential risk for all industries• Other industries have faced similar suits going back 20+ years
2. Reassess Entity Planning• Recent cases offer a roadmap for success• Structures/affiliates should be improved before audit/litigation
3. Business Trends – More known customers, with known addresses• Mobile apps• Customer online accounts• Registered/reloadable cards• Electronic delivery
Takeaways for Holders from the Gift Card Experience
22
![Page 23: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/23.jpg)
Eversheds Sutherland
Owners with Foreign Addresses
─ States pursue foreign-addressed property under the second priority rule
─ States see this as a “rational extension” of the priority rules
─ Most states exempt “property held, due, and owing in a foreign country if the transaction out of which the property arose was a foreign transaction”
23
![Page 24: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/24.jpg)
Eversheds Sutherland
Estimation & Extrapolation
States/auditors continue to apply troublesome estimation and extrapolation techniques
Delaware sends VDA “invitations” to target companies
Companies who do not enroll in the VDA in 60 days will receive audit notices
24
Temple-Inland v. Cook (D. Del. 2016)Struck down the estimation method to extrapolate a 50-state liability assessed solely by Delaware
Delaware Audit Regulations (2018)Articulates the same method rejected bythe Court
![Page 25: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/25.jpg)
Eversheds Sutherland
Hot Topics and Trends
![Page 26: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/26.jpg)
Eversheds Sutherland
Cybersecurity and Audits
26
─ “Hacking of U.S. Networks Traced To China and Iran” NY Times 2.18.19• Private companies and governments are battling
increasingly sophisticated government-affiliated hackers from China, Iran and Russia
─ It’s not a matter of if, but when
─ Holder must perform rigorous due diligence on the auditor’s cybersecurity policies, procedures and cyberinsurance policies
─ Limit confidential data provided to auditors and know legal ramifications
─ Understand your own company’s cybersecurity policies on data transfers with vendors and third parties; have your CISO and legal department review any arrangements involving data transfer
─ Pay attention to destruction of data at the end of audit
![Page 27: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/27.jpg)
Eversheds Sutherland
Emerging Property Types
─ Stored Value
─ Loyalty Programs
─ Cryptocurrency and Cryptotokens
27
![Page 28: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/28.jpg)
Eversheds Sutherland
Retirement, Pensions and Insurance
Insurance and Financial Services
DMF MATCHING GENERAL LEDGER
Life Insurance/Annuities
+DMF
28
![Page 29: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/29.jpg)
Eversheds Sutherland
Retirement, Pensions and Insurance
─ California Unclaimed Life Insurance Benefits “Guidance” Held to be Invalid Regulations
─ Lost Pensionholders
─ 401(k) Plan Treatment
─ IRA Reporting – Tax Implications
29
![Page 30: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/30.jpg)
Eversheds Sutherland
Recent Litigation
Life InsuranceCryptocurrencyGift cards and store credit
BankruptcyAudit requestsMemberships
Interest
SecuritiesBankingERISA
Audit processGift cardsEstimationRetroactivity
Life Insurance
Insurance
Litigation Landscape
30
![Page 31: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/31.jpg)
Eversheds Sutherland
Key Takeaways
─ Increased Intensity Across the Board• Regulator expectations of compliance• Legislative change and new rules• Audit risk and frequency
─ Assess & Mitigate Your Risk• Understand areas of potential exposure• Engage in proactive compliance efforts and planning• Cybersecurity issues
─ Educate Stakeholders within Your Organization• Integrate unclaimed property into your new
processes/products
31
![Page 32: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/32.jpg)
Eversheds Sutherland
Questions
32
![Page 33: Unclaimed Property - Eversheds Sutherland · This communication is for general informational purposes only and is not intended to constitute legal ad vice or a recommended course](https://reader034.fdocuments.in/reader034/viewer/2022050309/5f717edb5d455850443b61ae/html5/thumbnails/33.jpg)
eversheds-sutherland.com© 2019 Eversheds Sutherland (US) LLPAll rights reserved.This communication cannot be used for the purpose of avoiding any penalties that may be imposed under federal, state or local tax law. PRIVILEGED AND CONFIDENTIALThis communication cannot be used for the purpose of avoiding any penalties that may be imposed under federal, state or local tax law.
Mary Jane [email protected]+1 202 383 0660
Wilson [email protected]+1 202 383 0824
Phillip [email protected]+1 202 383 0261
John Allen [email protected]+1 212 389 5078