1. Foundations of Unclaimed Property
JMS Advisory Group, LLC
Foundations of
Unclaimed Property
James O. Santivañez

2. History Origins from British Common Law/Feudal Times Escheat
Traditional
Custodial
Bona Vacantia
Unclaimed Property is not a “tax”

3. What is Unclaimed Property?
Generally Consists of intangible personal property that has a business or organization has in its possession that has not been claimed by the true owner
Also referred to as “abandoned property” or “escheat”
Monetary & other assets such as bank accounts, refunds, uncashed checks, securities, and credit balances

4. Terminology Activity Aggregate Custodian
Action taken by the owner of the property which may include making a deposit, a withdrawal, correspondence with the holder, or any other action that the statute deems adequate.
Aggregate
The threshold dollar amount of an individual owner’s account which would require detailed reporting and/or due diligence efforts.
Custodian
An individual or entity that holds property until it is delivered to the rightful owner (State).

5. Terminology Continued
Dormancy Period
Period of time the holder retains the property before reporting compliance is required.
Due Diligence
A series of efforts required by law that a holder must perform to find the rightful owner before remitting the property to the state.
Holder
The entity that is in possession of, or controls the property until it is transferred to the state on behalf of the lost owner
Holder Domicile
The holder’s state of incorporation or organization

6. Terminology Continued
Indemnification
An agreement that protects a party from loss by transferring the responsibilities to the third party.
Intangible Personal Property
A right or possession of a non physical or abstract nature that has value, such as a financial asset having no intrinsic value but representing value.
Last Known Address
The location of the owner of unclaimed property as reflected on the holder’s records; often meaning sufficient for the purposes of the delivery of mail.

7. Terminology Continued
Rightful Owner
A person and/or entity who has the legal right to make a claim to the property (parens patriae)
State
Can mean any jurisdiction (Most often a state, U.S. District or Territory), that “steps into the shoes” of a holder after a statutorily defined dormancy period.
Uniform Unclaimed Property Acts
The Uniform Acts are the basis for states unclaimed property laws. Uniform Acts were promulgated in 1954, 1966, 1981 and 1995.

8. Originating U.S. Case Law
Constitutionality of Escheat Statutes
Hamilton v. Brown (1896)
Cunnius v. Reading School District (1905)
United States v. Klein (1938)
Anderson National Bank v. Luckett (1944)

9. The Uniform Acts Uniform Unclaimed Property Acts
The Uniform Disposition of Unclaimed Property Act originated in 1954; with subsequent revisions occurring in 1966, 1981 and 1995.
The acts were originally intended to guide states as they drafted and adopted their own unclaimed property laws.
All states and U.S. Territories have unclaimed property laws of their own, but these laws vary in the degree of adherence to the Uniform Acts.
The Uniform Acts were intended to promote uniformity.
Does uniformity really exist?

10. The Uniform Acts - Continued
Uniform Disposition of Unclaimed Property Act (1954)
Was adopted in 12 states
Revised Disposition of Unclaimed Property Act (1966)
Adopted with modifications by 13 states and the District of Columbia
Uniform Unclaimed Property Act (1981)
Adopted by 33 states and the Virgin Islands
Uniform Unclaimed Property Act (1995)
Adopted by 6 states

11. Currently Applicable Case Law
U.S. Supreme Court Case Law
Texas vs. New Jersey, 379 U.S. 674 (1965)
Court concluded that unclaimed property goes to “state of last known address of the creditor, as shown on the debtor’s books and records”
Pennsylvania vs. New York, 407 U.S. 206 (1972)
Examined the transaction priority rule not as a default to the first and second priority rules established in Texas vs. New Jersey, but rather as a means for “allowing the State of the ‘place of purchase’ to escheat under the primary rule.”
Delaware vs. New York, 507 U.S. 490 (1993)
Court concluded that “no State my supersede [the Texas rule] by purporting to prescribe a different priority under State law”

12. Reporting Basics Where to Report? What Property is Reportable?
Priority Rules/Texas v. New Jersey
What Property is Reportable?
Abandoned Intangible Property; the Presumption of Abandonment
When to Report?
Varies by State – Typically Fall & Spring
Why Report?
It’s the Law…Avoid Penalty and Interest
Pay for Louisiana to build roads…

13. Louisiana Approves Funding to Finish I-49
“HB370 allows the Department of Transportation and Development to use bonds secured by unclaimed property funds to help complete the extension that will stretch from Interstate 220 north of Shreveport to the Arkansas line.”
“The unclaimed property funds will account for $7.5 million.”
Article published July 8, 2011 by LandLinemag.com

14. Questions & Answers

15. Break JMS Advisory Group, LLC Next Session Starts at 10:00 AM

16. Reporting Requirements
JMS Advisory Group, LLC
Compliance and State
Reporting Requirements
Timothy Goodyear & Jay Starr

17. Compliance Reporting Requirements
Property Subject to Custody
The 1954, 1966 and 1981 Uniform Acts did not specify the property that was subject to the state’s custody
In these Acts, the property was identified by the type of holder
The 1995 Uniform Act addresses both the specific types of property and the type of holder
Periods for Presumption of Abandonment
Varies under the Uniform Acts for different types of property
Have been shortened with each succeeding Act
Varies even under specific state laws, with an overall trend towards shortening dormancy periods all property types

18. Compliance Reporting Requirements – Where?
Where to Report
State of owner’s last known address
State of holder’s incorporation or domicile if not known
All states and the District of Columbia, Virgin Islands, Guam and Puerto Rico have Unclaimed Property Laws
Several Provinces in Canada Now Mandate Unclaimed Property Compliance
Foreign Address Property

19. Compliance Reporting Requirements – What?
Types of Unclaimed Property Associated with Banks:
Checking and Savings Accounts
Matured CDs
Security Deposits
Trust Accounts
Unidentified Deposits
Safety Deposit Box Contents

20. Compliance Reporting Requirements – What?
Types of Unclaimed Property Associated with Insurance Companies:
Individual and Group Policies
Proceeds Due Beneficiaries
Matured Policies
Premium Refunds
Unidentified Premium Payments
Aged Credit Balances
Drafts Not Presented

21. Compliance Reporting Requirements – What?
Types of Unclaimed Property Associated with Retail, Manufacturing, and Other Types of Companies:
Uncashed Vendor/Payables Checks
Uncashed Payroll Checks
Unredeemed Gift Certificates
Accounts Receivable Credit Balances
Benefits Payments
Commission Payments
Unused Groupons?

22. Compliance Reporting Requirements – What?
Types of Unclaimed Property Associated with Utilities:
Customer Deposits
Refunds and Rebates
Membership Fees
Utility Refunds
Court Ordered Refunds
Special Assessment Fees

23. Compliance Reporting Requirements – What?
Types of Unclaimed Property associated with Health Care Organizations:
Patient Credit Balances
Salary/Wages
Accounts Payable
Unidentified Remittances
Self-insurance Payments
Stocks/Dividends Checks
Debt/Interest Checks

24. Compliance Reporting Requirements – What?
Types of Unclaimed Property Associated with Oil and Gas Companies:
Royalties
Production Payments
Net Revenue Interest
Salary/Wages
Payment to Participants
Bonuses
Delay Rentals
Surface and Subsurface minerals

25. Standard Dormancy Periods
Depends on the Property Type and the State
Typical Dormancy Periods:
Payroll/Commissions MS01 1 Year
Accounts Payable MS Years
Accounts Receivable MS Years
Other Outstanding Checks MS Years
Gift Certificates/Cards MS Years
Recent Activity Includes Numerous States Reducing Dormancy Periods In Order To Close Budget Gaps

26. Examples of State Specific Requirements
California
Requires both a “notice” and “remit” report
Indiana
Requires filing electronically on state website
New York
Requires sending additional due diligence letters for amounts greater than $1,000
North Carolina
Recently passed legislation requiring SSN, DOB, DL# and additional information
Tennessee
Requires electronic NAUPA format with paper coversheet for all reports and must be encrypted

27. Quantification of Reporting Responsibilities
Determining Your Liability: Documents
Know the law: how far are we to look back?
Corporate Structure
Chart of Accounts & Trial Balances
Systems/ERP History
Prior UP Report/Audit Activity
O/S Check Listings from all disbursement Accounts
Accounts receivable aging reports
Journal Entries of amounts written-off
Description of third party administered programs
Mergers/Acquisitions

28. Exposure & Quantification
Determining Your Liability: Exemptions & Deductions
Review applicable state statutes to determine exemptions and deductions
Common examples:
Business to Business (B2B)
Gift Certificates
Payroll Exemptions

29. Exposure & Quantification
Preparing the Report: Basic Checklist
Have you performed due diligence?
Does the report need to be filed electronically?
Does the payment need to be made electronically?
Who can sign the report?
Are negative reports required?
When is the report due?
Postmark vs. Received by

30. Exposure & Quantification Test Case
Total Population of Outstanding Checks
Owner Name
Owner State
Property Type
Last Transaction Date
Amount
John Smith
Louisiana
Payroll
6/30/2010
$25.00
XYZ Company
Arizona
Accounts Payable
6/30/2008
$49.99
John Doe
Ohio
$45.00
Jane Doe
$55.00
ABC Supermarket
6/30/2006
$125.00
123 Manufacturing
Colorado
$26.00
Fred Flintstone
Georgia
$100.00

31. Exposure & Quantification Test Case
Is Due Diligence Required?
Owner Name
Owner State
Property Type
Last Transaction Date
Amount
John Smith
Louisiana
Payroll
6/30/2010
$25.00
XYZ Company
Arizona
Accounts Payable
6/30/2008
$49.99
John Doe
Ohio
$45.00
Jane Doe
$55.00
ABC Supermarket
6/30/2006
$125.00
123 Manufacturing
Colorado
$26.00
Fred Flintstone
Georgia
$100.00

32. Exposure & Quantification Test Case
Exemptions & Deductions
Owner Name
Owner State
Property Type
Last Transaction Date
Amount
Reportable Amount
John Smith
Louisiana
Payroll
6/30/2010
$25.00
XYZ Company
Arizona
Accounts Payable
6/30/2008
$49.99
$0.00
John Doe
Ohio
$45.00
Jane Doe
$55.00
ABC Supermarket
6/30/2006
$125.00
123 Manufacturing
Colorado
$26.00
$1.00
Fred Flintstone
Georgia
$100.00

33. Questions & Answers

34. Voluntary Settlements
JMS Advisory Group, LLC
Seeking Amnesty &
Voluntary Settlements
James O. Santivañez & Timothy Goodyear

35. Why Comply and File? State Unclaimed Property Laws
All States have enacted unclaimed property laws
Unclaimed property reporting is mandatory, not voluntary
States have the ability to charge penalty and interest for non- compliance

36. If You’ve Never Reported – What Should You Do?
Verify that all unclaimed property is captured
Thoroughness is important
Consideration of prior M&A activities
Interface with other company departments
Importance of a cohesive approach
Developing Policies/Procedures

37. Voluntary Disclosure Agreements
What is a Voluntary Disclosure Agreement
Most states have adopted some type of voluntary disclosure program
Amnesty Programs
Much more formal and offered by some states on an occasional basis
FL, IL, TX as examples

38. Why seek a Voluntary Disclosure Agreement?
If Accepted, the Benefits Include:
Limited Look Back Periods
Waiver of Interest in Most Cases
Waiver of Penalty in Most Cases
Limitations on Future Audits
Written Closure = Security

39. VDAs: Getting Started
Request / Petition for Admittance into the Program
Make sure you qualify
Not Currently Under Audit in that State
No Filing History
Contact the state(s)
In Louisiana: Mr. Benny Spann
Examine the Need for Additional Help
Get Other Department Personnel Involved
Need to Hire Outside Counsel / Consultants?

40. Questions & Answers

41. State Audits JMS Advisory Group, LLC James O. Santivañez

42. Audits – Types State Audit Department Third Party Audit
Typically conduct an audit of property owed just to that individual State
On occasion they will perform a “Joint Audit” meaning they will cooperate or act on behalf of another state in the audit
Third Party Audit
A firm that typically audits on behalf of many states at one time
Typically work on a contingent fee arrangement
Increased activity as of late; new audit firms have formed

43. Audits – Increased Activity
Preparing the Report: Basic Checklist
Where most of the new property types are coming from
“Uninvoiced Payable”
With belt-tightening, states that have historically been lenient are now pursuing interest/penalties for non-compliance
Industry-specific audit focus is back in certain states

44. Audit Triggers
Registering in a state to do business or pay tax, but not filing unclaimed property reports
Industry type – oil & gas, financial services, and healthcare are traditionally most attractive
State of Incorporation
History of mergers & acquisitions
Period(s) of rapid growth
Claiming property from the state with no reporting history
Drive-by audit

45. Audits – We Got the Notice… Now What?
Take the audit notice seriously
The auditors represent the states and have the authority to assess interest and penalties
Assess your potential liability
Have an idea of what the potential assessment may be. Virtually every company has some degree of liability
Determine how you will handle the audit
Internally or outside consultation
Make sure the scope of the audit is clearly defined
Do not give the auditors unsupervised access to your records, assign one point of contact to assist

46. Audit Elements Notice and request for information Opening conference
Identification of key audit elements
Detail review/sampling
Extrapolation/estimation
Closing conference

47. Audits – Holder’s Rights
Due Process
Adherence to Statutes & Regulations
Adherence to State-specific Written Audit Procedures
Claiming/Application of Exemptions and Deductions
FOIA Request
Confidentiality
Object to Audit Results

48. Audits – State Rights
To audit your books and records specific to unclaimed property for participating states
To expect a reasonable response time
To assess interest and penalty
To litigate

49. Audits – Initial Reaction & Response
Assess Your Liability Realistically Through:
Internal investigation with general counsel’s involvement
Engage outside consultant – accountant and/or attorney
Implement Your Strategy By:
Identifying your team
Involving in-house counsel sooner rather than later
Ensure counsel is in agreement with the audit-defense approach

50. Audits – Dealing with the Auditor
Respond Quickly & Professionally
Have Defenses in Mind
Know the Auditor (or Auditing Firm) and/or the State(s) involved
Know the law
Be prepared to take control
Be prepared to take off the gloves

51. Audits – Dealing with the Auditor
Can you demand that the third-party auditor agree not to bring additional states into the audit?
YES – and you should!
A confidentiality agreement should be put in place, and must include such a provision.
As a practical matter, the audit should not proceed until such an agreement is in place.
You do not have to provide an auditor with information relating to states that are not participating in the audit.

52. Audits – Simple Demands
Demand: confidentiality
Demand: proper authorization & fulfillment of notice requirements
Demand: to know proposed methodology at outset
Demand: official written closure from each state represented in the audit

53. Audits – Limited or Unavailable Records
The burden of proof rests
with the holder to contest the
presumption of abandonment.

54. Audits – Statistical Sampling
Many auditors may try to impose statistical sampling based on readily available records.
Samples based on available records are used to extrapolate liability in years under audit where records are not available.
Most states and the auditors working on their behalf have the authority to use sampling in these audits.

55. Audits – Sampling Questions to Ask
Is the auditor qualified to implement a truly statistical sample?
Is the validity and error rate within state-accepted guidelines?
Will the results be representative once extrapolated?
Review the methodology before any sample is pulled.

56. Questions & Answers

57. Break JMS Advisory Group, LLC Next Session Starts at 2:40 PM

58. Timothy Goodyear & Jay Starr
JMS Advisory Group, LLC
Unclaimed Property 201
Timothy Goodyear & Jay Starr

59. Compliance Calendar Establish Timeframes
Prepare a timeline and calendar for important steps in the reporting process
Design and specify procedures to detect errors or irregularities in the unclaimed amounts

60. Compliance – When Are Reports Due?
KEY
March 1
March 10
March 31
April 15
April 30/May 1
July 1
Oct 31/Nov 1
Nov 1/June 15
Texas Report Due Date Changes to July 1 in 2012

61. Record Retention Unclaimed Property v. Tax Retention Challenges
Retention Policies Tied to Tax Requirements
Mergers and Acquisitions
Corporate Downsizing/Turnover
Accounting System Changes

62. Compliance – Due Diligence
When is Due Diligence Required?
Typically 60 to 120 Days prior to the report due date
Do I Have to Perform Due Diligence?
Yes. It is statutorily required for most states.
I have 100 items in the amount of $.01, Do I have send a letter for those items?
No. Most states have an amount threshold in between $20-$50
Can I Recover my Costs for Due Diligence?
Sometimes. Some states allow a line item expense deduction on the report total for due diligence costs.

63. Compliance – Deductions and Exemptions
Review Applicable State Statutes to Determine Exemptions and Deductions
Common Examples:
Business to Business (B2B)
Examples: AZ, ID, KS, MD, MA, NC, OH, VA and WI
Gift Certificates
Some states allow deductions and others exempt completely
Payroll Exemptions (KY, MI and OH)
Deductions & Exclusions (CO and ID)

64. Exposure & Quantification Test Case
Exemptions & Deductions
Owner Name
Owner State
Property Type
Last Transaction Date
Amount
Reportable Amount
John Smith
Louisiana
Payroll
6/30/2010
$25.00
XYZ Company
Arizona
Accounts Payable
6/30/2008
$49.99
$0.00
John Doe
Ohio
$45.00
Jane Doe
$55.00
ABC Supermarket
AR Credit
6/30/2006
$125.00
123 Manufacturing
Colorado
$26.00
$1.00
Fred Flintstone
Georgia
$100.00

65. Compliance – Options Manual Software Outsource
Do Nothing (playing the audit lottery)

66. Compliance – Manual
Create a matrix for due dates and review states websites for changes
Due Diligence
Reporting by Industry
Multiple Spreadsheets
Mail Merge for Letters
Manage/Track Due Diligence Responses
Keep Records for Retention Period
Personnel Training & Process Development

67. Compliance – Software Centralized Database to House Records
Updates Legislative Changes
Maintain Control of Records
Provides Reminders for Due Dates for Letters and Reports
Generates Due Diligence Letters
State Reports are Completed and Retained
Creates Standard Electronic NAUPA Filing Format

68. Compliance – Outsource
Experts in the Field Oversee the Function
Due Diligence
Reporting
Employees Can Focus on True Value-Added Activities
Lack of IT Resources
Payment Issuance
Reports are Done Correctly and on Time

69. Examples of Recent Law Changes
Nevada S.B. 136 – Reduces from 3 years to 2 years the period after which unclaimed property is presumed to be abandoned if the holder holds more than $10 million in property presumed abandoned on the most recent report filed by the holder.
Texas H.B. 257 – The bill lowers dormancy periods for money orders from 7 to 3 years.
North Carolina H.B. 692 – Requires holders to report additional owner information including SSN, DOB, DL#, and address where applicable.

70. Questions & Answers

71. Timothy Goodyear & Jay Starr
JMS Advisory Group, LLC
Recovering Funds for
Your Company
Timothy Goodyear & Jay Starr

72. Asset Recovery We have told you how to manage the flow
of your company’s money to the various states…
Now let’s try to get some of your money back!

73. Asset Recovery – Recover Funds for Your Company
States have billions in their unclaimed property accounts waiting to be claimed
Identify your company’s history
M&A activity
Old DBAs and Locations
Gather corporate documents
Letter of authorization to claim funds
Address verification documents
IRS Schedule 851
Corporate Entity Map – Organization Chart

74. Asset Recovery
There is no centralized source to search for unclaimed property.
There are multiple sources for unclaimed property
Pre-Escheated Property
Escheated Property
Bankruptcy Funds
Federal Funds
Municipality Funds

75. Asset Recovery – Where to Look
Start with the State UP Websites
Check the databases regularly – most update at least once per year
is a good place to access each state website
Missing Money –
Consolidate searching source, about 40 states participate, sometimes can be outdated
Bankruptcy Courts
Federal Sites
Letter Requests
Recovery Professionals

76. Asset Recovery Claim Process
Filling out claim forms is a manual process
Some forms can be filled out online while others are mailed directly to you
Provide evidence of the rightful claim in advance, to speed up the claims process
Expect multiple follow-up requests from certain states

77. Asset Recovery – Tips of the Trade
Know how each database functions
Wildcard search (* represents unknown terms, etc.)
Exact term match
Partial term match
Spelling, Spaces, & Order
The Coca-Cola Company, Coca Cola, Coke, CocaCola, Coke Cola, Coke Co, etc.
Track your activity & results
Timeline what you did and when you did it
Follow up on your claims in a timely fashion
Be patient and organized
It could take a year or longer in some states to recover funds

78. Asset Recovery Caveats
Is your company up to date in its filings?
DO NOT START CLAIMING PROPERTY WITHOUT BEING IN PROPER COMPLIANCE
Be aware of the possibility of “offsets”
Not all property is included on a website so make sure you utilize secondary sources to identify unclaimed property
Confirm that the property is not held in a fiduciary capacity or is jointly owned.

79. Questions & Answers

80. Thank You!
We enjoyed our time with you here today and hope that you found this presentation to be helpful.
JMS ADVISORY GROUP, LLC