Eric Mauldin

Principal

Future Unclaimed Property Issues: Crypto, COVID-19, Litigation & More

As unclaimed property law continues to evolve, Clearview Group helps its clients adapt their policies and procedures to ensure they will be in compliance now and in the future.

Unclaimed property can include liabilities such as uncashed payroll and accounts payable checks, customer credit balances, gift cards, dormant checking or savings accounts, as well as dividends and stocks. Every year, businesses are required to report any open obligations within their organization once they become dormant. But the unclaimed property world is a dynamic one, especially today as states initiate more and more audits and look to increase their revenue.

There are several components impacting the direction of unclaimed property law, and as a result, companies need to stay abreast of the constantly changing landscape. That is why organizations would be wise to partner with experienced State and Local Tax professional experts like the team at Baltimore-based consultancy Clearview Group. Clearview Group’s State & Local Tax (SALT) team can identify a company’s areas of need, develop a comprehensive plan to get the company into compliance and help maintain that compliance in the future.

Here are just a few of the factors that are set to impact unclaimed property law in the near future and how Clearview Group helps its clients prepare.

Virtual Currency and Inactive Online Gaming Accounts

Some of the primary questions that have come up recently in the unclaimed property world are based around how to report emerging forms of financial obligations. For example, the meteoric rise of cryptocurrency and online gambling is resulting in an increase in virtual assets that may be harder to categorize.

“States are starting to look into these issues as these trends become more popular,” said Eric Mauldin, a Principal within Clearview Group’s SALT practice and lead of the Unclaimed Property division. “Do you report shares of cryptocurrency stock or liquidate the share before you report it? If you have a gaming website account that is registered in one state, do you really have the address of the person? There generally are not very many provisions currently set in terms of how these liabilities will be reported, but there are a lot of prospective bills out there. Within the next year, there will likely be some rules in place for how these issues are to be handled, and Clearview Group will walk our clients through the changes as soon as they happen.”

Compliance in a Post-Pandemic World

Last year, the COVID-19 pandemic had a significant impact on unclaimed property compliance, particularly when it came to the increased level of leniency states took when enforcing compliance. Moving forward, Mauldin says companies need to prepare for the pendulum to swing the other way as states look to bring in lost revenue through ensuring annual compliance, audits and Voluntary Disclosure Agreement (“VDA”) invitations.

“In 2020, I found that states were overall generous with holders when it came to unclaimed property compliance, offering extensions and waivers of penalties — giving companies a chance to figure out the new world we were living in,” said Mauldin. “Now, they are really diving back in and making sure holder adhere to their escheat obligations. As an example, Delaware has sent out hundreds of VDA invitations in the past few months, encouraging companies to come forward voluntarily prior to initiating an audit. Other states are taking it upon themselves to audit companies, utilizing third-party contract firms to assist with the process. This means it is more important than ever that companies ensure they are in compliance.”

Recent Litigation

In the constantly evolving world of unclaimed property, numerous court cases are popping up that could have a potential impact on the trajectory of the landscape, Mauldin says.

“Until recently, Delaware rarely lost a case because the court generally took the state’s side,” Mauldin said. “That has slightly changed. For example, when states partner with third-party contract firms to administer an audit, those firms generally worked on a contingent basis, which means they would try to do anything they can to bring in money for the states. This made the process much more aggressive over the past few years, and companies are starting to fight back. Recently enacted legislation decrees that these contract firms cannot be paid on a contingent basis anymore, instead requiring that they be paid hourly. This could have a major impact on the future of the industry.”

Mauldin also points to several Freedom of Information Act cases that could affect unclaimed property law. “When you estimate your liabilities through a VDA, it is based on the liabilities of all states, and companies are pushing back and asking why they need to provide information for all states,” he said. “States are starting to agree that companies should not have to divulge as much information. It is still a tedious process and states are still in control, but we are seeing minor victories as it relates to dealing with the states. For example, the lookback period of audits and VDAs used to go back 20 years or more, but that has recently been cut down to as little as 10 years plus dormancy period. Many of these rules have emanated from litigation in recent years.”

Unclaimed Property Compliance Outside of the U.S.

While most countries do not have unclaimed property compliance requirements, Mauldin says Canada is starting to follow the U.S. in this regard. This could mean domestic companies with operations in Canada might have to start adapting their practices in the future.

“Canada has one province — Alberta — with similar unclaimed property laws to the U.S.,” said Mauldin. “Many of the other provinces have unclaimed property laws on their books, but only for banks and financial institutions.  Once laws similar to Alberta are enacted in Ontario, the other provinces will likely follow. If you have a property owned by someone in Canada, coming from a domestic company, I would recommend you follow the laws outlined in your state of incorporation and escheat any unclaimed funds there. If you own a Canadian bank account with unclaimed property owed to someone, you generally wouldn’t report that unless the address is in Alberta.”

The Advantage of Partnering With Clearview Group

All of these areas have the potential to create issues for organizations and holders in the future, which is why Clearview Group works hard to stay as up to date as possible on unclaimed property law to offer its clients the best service. Clearview Group provides organizations with analytic review, annual reporting, audit defense, VDA assistance and the development of policies and procedures.

“Unclaimed property is not going away any time soon — it generates too much revenue for the states — so it is imperative companies know what their obligations are and the way the industry is changing,” Mauldin said. “Unless you are a company with a huge number of transactions, it probably is not someone’s full-time job to focus on unclaimed property compliance, so the quality of work often slips through the cracks. We take on that full-time job for you and take that burden and responsibility away from our clients. I have worked in consulting for more than 15 years and learned how to get large Fortune 500 companies into compliance. I have also been on the holder’s side and understand their concerns. Between our competitive rates, experience and quality of work, we would be a great choice for anyone looking for assistance.”

 

For more information, contact Clearview’s Unclaimed Property expert, Eric Mauldin at emauldin@cviewllc.com or visit: https://cviewllc.com/

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