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BEST PRACTICES & PREPARATION TIPS FOR UNCLAIMED PROPERTY REPORTING Pamela Wentz, Director
Agenda Unclaimed Property Reporting Overview Holder Duties Common Reporting Errors Requirements for Royalties Best Practices 1099 Reporting Questions & Answers Keane © 2014CONFIDENTIAL2
Unclaimed Property 101 Definition– Financial assets that have had no owner-generated contact after a specified period of time, usually 3-5 years Roots are in English common law: Escheat vs. Custodial Governed and enforced at the state level Fifty-four (54) reporting jurisdictions including, DC, Puerto Rico, Guam and U.S. Virgin Islands: No two laws are exactly the same CONFIDENTIAL3Keane © 2014
Rules of Jurisdiction Texas v. New Jersey 379 U.S. 674 (1965) State of owner’s last known address State of holder’s incorporation or domicile if address not known *State of holder’s incorporation or domicile if address of apparent owner is in a foreign country and if holder is incorporated or domiciled in the U.S. * Provision added in the 1981 Uniform Act Note – after nearly 40 years this remains the law of the land today CONFIDENTIAL4Keane © 2014
Filing a Report Why Should You Care? It’s the law! Generally no statute of limitation Historically an area that has been overlooked States estimate 70-90% general ledger out of compliance Increasing audit activity Potential for significant penalties Reputational risk Sarbanes-Oxley Section 302 & 404 Keane © 2014CONFIDENTIAL5
Know the States, Know the Dates Keane © 2014CONFIDENTIAL6
Identifying Applicable Property Types Un-cashed checks Deposits Customer credits Refunds Unapplied payments Dormant accounts Payroll Accounts receivable Accounts payable Retirement assets Workers’ Comp 7 Mineral proceeds/royalties Bonus Delay rentals Matured bonds Un-exchanged shares Unpaid dividends Underlying stock Other general ledger items Tangible property - Safekeeping Commissions Rebates Unidentified cash/credits CONFIDENTIALKeane © 2014
Quantify the Potential Liability Identify periods where detailed records are available Review records and schedule items that are potential unclaimed property Research items to determine if they represent a fixed and certain obligation Identify royalties in escheat status Review suspense accounts for aged items that might not be designated as escheatable Keane © 2014CONFIDENTIAL8
Dormancy Decisions Date of last activity/contact Production date Issue date Date returned from Post Office (RPO) CONFIDENTIAL9Keane © 2014
Reporting Owner Information Complete name and last known address Social Security Number, if known Account number Amount Property type Description of property Joint ownership or custodial information Keane © 2014CONFIDENTIAL10
Filing a Report Know the filing requirements by state Are you required to file electronically? Is a cover letter required? Must the cover letter be notarized? How should the funds/shares be delivered? Can you upload via the state Web site? Is there a cost? Do you need to send a paper copy of the report? Who in your company must sign the report? CEO? CFO? Does the state require a negative report if there is no reportable unclaimed property this year? Keane © 2014CONFIDENTIAL11 20
Holder Responsibilities Duty to file a timely report Duty to perform due diligence timely Duty to file in state mandated format Duty to maintain copies of the reports and supporting documentation Duty to protect the funds until reported and transferred to the state Keane © 2014CONFIDENTIAL12
Holder Responsibilities It is imperative for holders to ensure they are not Under reporting Over reporting Failing to report entirely Keane © 2014CONFIDENTIAL13
Holder Responsibilities Holder is required to report and remit every applicable property type generated by the organization and adhere to the unclaimed property laws and requirements for the appropriate reporting jurisdictions. Unless otherwise identified by contract, the legal obligation to file the report remains with the holder. If a holder fails to reunite the dormant asset with the owner, heir or beneficiary, the holder is required to file an unclaimed property report with complete details of all reportable property. Keane © 2014CONFIDENTIAL14
Common Problems Organizations Face When Filing Reports Making incorrect dormancy decisions Formatting names incorrectly Using incorrect property codes Failing to submit complete owner information Placing data in incorrect fields Creating multiple payments for a single report Sending reports without payments Sending payments without reports Aggregating property incorrectly Failing to identify joint owners Reporting only to the state of incorporation Keane © 2014CONFIDENTIAL15
1995 Uniform Act Section 1(8) defines “mineral” Section 1(9) defines “mineral proceeds” Section 25(c) prohibits finders from claiming a portion of the underlying minerals or mineral proceeds not yet abandoned Section 2(b) – current balance rule Keane © 2014CONFIDENTIAL16
Organizational Structure Identifying which entities have the legal obligation or are the holders of the unclaimed property Partnerships and joint ventures Keane © 2014CONFIDENTIAL17
Suspense Accounts Aging items held in suspense – Date of last contact v. production date Classifications – Unsigned division orders – Title disputes – Deceased Owner – Bad Address – Miscellaneous Keane © 2014CONFIDENTIAL18
Current Pay Definition of current pay Discussion of “rollup” concept Discussion of “pay to current” Current pay states New Texas rules Keane © 2014CONFIDENTIAL19
Current Pay? At the time that an interest is presumed abandoned under subsection 1, any other property right accrued or accruing to the owner as a result of the interest, and not previously presumed abandoned, is also presumed abandoned. Keane © 2014CONFIDENTIAL20
Forced Pooling Oklahoma – Applies to mineral owners whose mineral interest was forced pooled on a well located in Oklahoma – Within year of pooling, the Holder must report and remit funds to Oklahoma Corporation Commission – Funds are transferred to the Unclaimed Property Division after the dormancy period has passed Keane © 2014CONFIDENTIAL21
Texas – Mineral Proceeds Do not aggregate Do not include owners with a net negative balance Do not report owners if you have had contact in the last three years Current pay Each owner listed once – combined total Report continuing production payments with property type code MI10 Keane © 2014CONFIDENTIAL22
Best Practices – Create a Timeline Fall Begins in Spring May/June – File delivery July – Due diligence August/September – Process due diligence returns September – Prepare preliminary reports and confirm totals October – Prepare final reports and transfer assets Keane © 2014CONFIDENTIAL23 15
Best Practices - Gather Relevant Data Corporate Structure – Owner unknown property to the state of formation General Ledger / Chart of Accounts Bank Reconciliations / Outstanding Check Lists Journal Entries Accounts Receivable & Payable Aging Reports De-Minimis / Automatic system write-offs Contracts w/applicable service providers Keane © 2014CONFIDENTIAL24
Best Practices – Review Suspense Review suspense codes – Which codes quality for escheat? – Does status need to be changed to escheat? – Are codes used properly? – Are any codes problematic? Review aged items – Pull a report by production date Minimum Suspense – Identify amounts not released Keane © 2014CONFIDENTIAL25
Best Practices - Perform a Self Review Analyze corporate structure Understand and document the current and historical policies and procedures Document and review historical unclaimed property reporting history Identify potential types of unclaimed property your company may generate Quantify the potential liability for each property type Research items to verify that they are unclaimed and pay owner where possible Keane © 2014CONFIDENTIAL26
Best Practices – Stay Current Be aware of legislative changes that impact your industry Participate in industry associations that represent your interests Review state filing instructions annually Update your policies and procedures Include new lines of business in procedures and reporting Include unclaimed property compliance in due diligence of acquisitions Keane © 2014CONFIDENTIAL27
Best Practices – 1099s PROCESSING IRS NOTICE CP-2100A FOR MISSING OR INCORRECT NAME/TINS CP-2100A received from IRS Review accounts to determine if resolution is possible Prepare and mail 1 st “B” Notices with W-9 to owners, when applicable Prepare 2 nd “B” Notices for owners previously placed on backup withholding due to prior notification Owners accounts noted in computer system as to type of notice issued Update accounts as owners provide documentation to correct discrepancies After applicable waiting period for 1 st “B” Notices, unresolved accounts are placed on backup withholding Keane © 2014CONFIDENTIAL28
Best Practices – 1099s PROCESSING IRS PENALTY NOTICE Penalty Notice 972CG received from IRS Review accounts to determine if accounts have been resolved Issue 2 nd “B” Notices to owners previously placed on backup withholding Owner’s accounts noted that 2 nd “B” Notice has been issued Correct any accounts for which a SSN printout or IRS Letter 147C is received Corporate office drafts letter to IRS to request waiver of proposed penalties Keane © 2014CONFIDENTIAL29
Best Practices – 1099s MONTHLY TIN MATCHING TO REDUCE IRS PENALTY EXPOSURE IT department provides listing of owners who received a payment during current month Upload file to IRS website for processing IRS returns file indicating the accounts with TIN/Name discrepancies Review the list to determine if any accounts can be resolved immediately Contact owners whose TIN discrepancy remains unresolved to request W-9 or name verification Update accounts as owners provide documentation to correct discrepancies Keane © 2014CONFIDENTIAL30
Best Practices – 1099s ANNUAL TIN MATCHING TO REDUCED IRS PENALTY EXPOSURE IT department provides listing of owners who will receive Form 1099-Misc. Upload file to IRS website for processing IRS returns file indicating the accounts with TIN/Name discrepancies Review the list to determine if any accounts can be resolved immediately Contact owners whose TIN discrepancy remains unresolved to request W-9 or name verification Update accounts as owners provide documentation to correct discrepancies Issue corrected Form 1099-Misc. to owners who provide updated TIN information Keane © 2014CONFIDENTIAL31
Question and Answers Keane © 2014CONFIDENTIAL32
Contact Information 33 Pamela Wentz Director CONFIDENTIALKeane © 2014
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