CHAPTER 11 UNCLAIMED PROPERTY - WVSCPA

CHAPTER 11

UNCLAIMED PROPERTY

By Craig A. Griffith

Craig A. Griffith is a member in the Charleston, West Virginia law firm of Steptoe & Johnson PLLC. Mr. Griffith, a former West Virginia State Tax Commissioner, has over 15 years of experience in the area of West Virginia state and local taxation.

Published by West Virginia Society of Certified Public Accountants 900 Lee Street, E. Suite 1201, Charleston, WV 25301

? 1993 Commerce Clearinghouse, Inc. ? 2017 West Virginia Society of Certified Public Accountants All Rights Reserved

Table of Contents

Page

? 1101 Introduction .............................................................................................. 11-2

? 1102 Presumptions of Abandonment ............................................................... 11-4

? 1103 Contents of safe deposit box or other safekeeping depository ................ 11-8

? 1104 Rules for taking custody of unclaimed property ....................................... 11-8

? 1105 Dormancy charge .................................................................................... 11-9

? 1106 Burden of proof as to property evidenced by record of check or draft ..... 11-9

? 1107 Report of abandoned property ............................................................... 11-10

? 1108 Payment or delivery of abandoned property .......................................... 11-13

? 1109 Notice and publication of lists of abandoned property ........................... 11-13

? 1110 Custody by State Treasurer; recovery by holder; defense of holder ...... 11-14

? 1111 Crediting of dividends, interest and increments to owner's account ...... 11-15

? 1112 Public sale of abandoned property ........................................................ 11-16

? 1113 Deposit of funds..................................................................................... 11-17

? 1114 Claim of another state to recover property............................................. 11-18

? 1115 Filing claim with State Treasurer; handling of claims by Treasurer........ 11-18

? 1116 Action to establish claim ........................................................................ 11-19

? 1117 Election to take payment or delivery ...................................................... 11-19

? 1118 Destruction or disposition of property having no substantial commercial

value; immunity from liability ................................................................... 11-20

? 1119 Periods of limitation ............................................................................... 11-20

? 1120 Requests for reports and examination of records .................................. 11-20

? 1121 Retention of records .............................................................................. 11-22

? 1122 Enforcement .......................................................................................... 11-22

? 1123 Interstate agreements and cooperation; joint and reciprocal actions with

other states ............................................................................................. 11-22

? 1124 Interest and penalties ............................................................................ 11-23

? 1125 Records of abandoned property ............................................................ 11-24

? 1126 Foreign transactions .............................................................................. 11-24

? 1127 Uniformity of application and construction ............................................. 11-24

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? 1128 Electronic filing; forms..................................................................................... 11-24 Index ? Chapter 11 ? Unclaimed Property ............................................................... 11-27

Editor's Note: Some may ask why a chapter on unclaimed property is included in this Guidebook to West Virginia Taxes when the unclaimed property laws do not impose a tax. This chapter is included for a number of reasons. First, nationally, billions of dollars are being held by the states, including West Virginia, under their respective unclaimed property laws for the benefit of the owners of the abandoned property. This chapter is a means of educating owners of abandoned property of their rights and the process by which they may claim the abandoned property they own. Second, the UPA imposes record keeping and reporting obligations on businesses that hold unclaimed property. Small business owners may not be aware of their duties under these laws or realize that unless they timely and accurately report to the state administrator the unclaimed property they are holding, the 10-year statute of limitations does not apply to examinations by the state administrator for compliance with those laws.1 Third, West Virginia's unclaimed property laws also apply to business-to-business transactions that result in unclaimed property. This is not true under the unclaimed property laws of all states, however. Fourth, West Virginia businesses that do business with out-of-state consumers and out-of-state businesses may have reporting obligations to both the West Virginia State Treasurer and to administrators of unclaimed property laws of other states, when the last known address of a customer for whom they hold unclaimed property is in another state. Fifth, a business that fails to comply with its duties and obligations under the UPA can be subject to significant penalties, which increase if the failure is willful or the reports filed were fraudulent.

? 1101 Introduction Law: W. Va. Code ? 36-8-1 et seq. Regulations: WVCSR ? 112-5-1 et seq.

West Virginia adopted the Uniform Unclaimed Property Act (hereinafter "the Act" or "UPA") in 1997. It is based on The Uniform Unclaimed Property Act that was approved by the National Conference of Commissioners on Uniform State Laws in 1995.

The UPA is administered by the State Treasurer. A copy of the Act, regulations and various forms used by businesses to report unclaimed property and by owners to claim such property are available at the Treasurer's unclaimed property webpage, .

Property subject to the UPA includes tangible personal property described in ? 1103, below, and fixed and certain interests in intangible personal property that are held, issued or owed in the course of a holder's business, or by a government, governmental subdivision, agency or instrumentality, and all income or increments therefrom.

1 While the West Virginia UPA includes a 10-year statute of limitations, the unclaimed property laws of some states do not include a statute of limitations.

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A "holder" or "holder of abandoned property" is a person obligated to hold for the account of, or deliver or pay to, the owner of property that is subject to the UPA. However, this definition of "holder" is broad enough so that more than one party may be deemed to be the holder. An example of where there can be multiple holders is where a business uses a third party administrator to administer its rebate program. If the rebate is not claimed, it appears that both the business and the agent may have a reporting obligation and that records of both may be examined for compliance with the UPA. See ? 1120, below.

In general, "owner" means a person who has a legal or equitable interest in property subject to the UPA or that person's legal representative. "Owner" includes a depositor in the case of a deposit, a beneficiary in the case of a trust other than a deposit in trust, and a creditor, claimant or payee in the case of other property.

Fixed and certain interests in intangible personal property subject to the UPA include intangible property that is referred to as or is evidenced by:

(1) Money, a check, draft, warrant for payment issued by the state of West Virginia, deposit, interest or dividend;

(2) Credit balance, customer's overpayment, gift certificate, security deposit, refund, credit memorandum, unpaid wage, unused ticket, mineral proceeds or unidentified remittance;

(3) Stock or other evidence of ownership of an interest in a business association or financial organization;

(4) A bond, debenture, note or other evidence of indebtedness;

(5) Money deposited to redeem stocks, bonds, coupons or other securities or to make distributions;

(6) An amount due and payable under the terms of an annuity or insurance policy, including policies providing life insurance, property and casualty insurance, workers' compensation insurance, or health and disability insurance; and

(7) An amount distributable from a trust or custodial fund established under a plan to provide health, welfare, pension, vacation, severance, retirement, death, stock purchase, profit sharing, employee savings, supplemental unemployment insurance or similar benefits.

"Mineral proceeds" as used in item (2), above, means amounts payable for the extraction, production or sale of minerals, or, upon the abandonment of those payments, all payments that become payable thereafter. The term includes amounts payable:

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(1) For the acquisition and retention of a mineral lease, including bonuses, royalties, compensatory royalties, shut-in royalties, minimum royalties and delay rentals;

(2) For the extraction, production or sale of minerals, including net revenue interests, royalties, overriding royalties, extraction payments and production payments; and

(3) Under an agreement or option, including a joint operating agreement, unit agreement, pooling agreement and farm-out agreement.

Other terms used in the UPA are defined in W. Va. Code ? 36-8-1 and WVCSR ? 112-5-2.

The State Treasurer is authorized to promulgate rules and regulations in accordance with the State Administrative Procedures Act, W. Va. Code ? 29A-1-1 et seq., to implement, administer and enforce the UPA. In 2013, the rules were amended effective May 17, 2013.

? 1102 Presumptions of Abandonment Law: W. Va. Code ? 36-8-2. Regulation: WVCSR ? 112-5-3.

Property is presumed to be abandoned if it is unclaimed by the apparent owner during the time set forth below for the particular type of property:

(1) Traveler's check, fifteen years after issuance;

(2) Money order, seven years after issuance;

(3) Stock or other equity interest in a business association or financial organization, including a security entitlement under article eight of the uniform commercial code, five years after the earlier of: (i) the date of the most recent dividend, stock split or other distribution unclaimed by the apparent owner; or (ii) the date of the second mailing of a statement of account or other notification or communication that was returned as undeliverable or after the holder discontinued mailings, notifications or communications to the apparent owner;

(4) Debt of a business association or financial organization, other than a bearer bond or an original issue discount bond, five years after the date of the most recent interest payment unclaimed by the apparent owner;

(5) A non-interest-bearing demand, savings or time deposit, including a deposit that is automatically renewable, five years after the earlier of maturity or the date of the last indication by the owner of interest in the property; an interest-bearing demand, savings or time deposit including a deposit that is automatically renewable, seven years after the earlier of maturity or the date of the last indication by the owner of

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interest in the property. A deposit that is automatically renewable is deemed matured for purposes of this section upon its initial date of maturity, unless the owner has consented to a renewal at or about the time of the renewal and the consent is in writing or is evidenced by a memorandum or other record on file with the holder;

(6) Money or credits owed to a customer as a result of a retail business transaction, three years after the obligation accrued;

(7) Gift certificate, three years after the 31st day of December of the year in which the certificate was sold, but if redeemable in merchandise only, the amount abandoned is deemed to be 60% of the certificate's face value;

(8) Amount owed by an insurer on a life or endowment insurance policy or an annuity that has matured or terminated, three years after the obligation to pay arose or, in the case of a policy or annuity payable upon proof of death, three years after the insured has attained, or would have attained if living, the limiting age under the mortality table on which the reserve is based. The insurer's obligation to account for and pay those proceeds to the State Treasurer is tied to the death of the insured (or the insured's attainment of the limiting age), maturing three years thereafter.2 In 2016, the Legislature amended the insurance laws to require an insurer to annually perform a comparison of its insureds' in-force policies, annuity contracts and account owners against a Death Master File to identify potential death master file matches of its insureds, annuitants and account owners. The comparisons with the full Death Master File must be completed within two years from June 10, 2016, the effective date of House Bill 4739, on policies in force as of 1986, and all policies issued thereafter. The Insurance Commissioner is required to promulgate a legislative rule requiring that the comparison against a Death Master File be completed on policies issued prior to 1986, if the Commissioner determines that reliable technology and data exist to make such comparison accurate and cost-effective to match to the established Master Death Database.3

(9) Property distributable by a business association or financial organization in a course of dissolution, one year after the property becomes distributable;

(10) Property received by a court as proceeds of a class action, and not distributed pursuant to the judgment, one year after the distribution date;

(11) Property held by a court, government, governmental subdivision, agency or instrumentality, one year after the property becomes distributable;

(12) Wages or other compensation for personal services, one year after the compensation becomes payable;

2 Syllabus point 1, State of West Virginia ex rel. Perdue v. Nationwide Life Ins. Co., 236 W. Va. 1, 777 S.E.2d 11 (2015). The Nationwide Court also held that insurers have no specific duty under the Act to search the Department of Commerce's Death Master File or any compatible data source; Syllabus point 2 of Nationwide. 3 W. Va. Code ? 33-13D-2 as added by House Bill 4739 (effective June 10, 2016).

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(13) Deposit or refund owed to a subscriber by a utility, two years after the deposit or refund becomes payable;

(14) Property in an individual retirement account, defined benefit plan or other account or plan that is qualified for tax deferral under the income tax laws of the United States, three years after the earliest of the date of the distribution or attempted distribution of the property, the date of the required distribution as stated in the plan or trust agreement governing the plan, or the date, if determinable by the holder, specified in the income tax laws of the United States by which distribution of the property must begin in order to avoid a tax penalty;

(15) Warrants for payment issued by the state of West Virginia which have not been presented for payment, within six months of the date of issuance;4

(16) All funds held by a fiduciary, including the West Virginia Municipal Bond Commission, for the payment of a note, bond, debenture or other evidence or indebtedness, five years after the principal maturity date, or if such note, bond, debenture or evidence of indebtedness is called for redemption on an earlier date, then the redemption date, such premium or redemption date to also be applicable to all interest and premium, if any, attributable to such note, bond, debenture or other evidence of indebtedness; and

(17) All other property, five years after the owner's right to demand the property or after the obligation to pay or distribute the property arises, whichever first occurs.

At the time an interest is presumed abandoned, any other property right accrued or accruing to the owner as a result of that interest, and not previously presumed abandoned, is also presumed to be abandoned.

Property is unclaimed if, during the applicable period set forth above, the apparent owner has not communicated in writing, or by other means reflected in a contemporaneous record prepared by or on behalf of the holder, with the holder concerning the property or the account in which the property is held, and the owner has not otherwise indicated an interest in the property. A communication with an owner by a

4 This includes state tax refunds. Although information about tax refunds is generally confidential under W. Va. Code ? 11-10-5d, a specific exception to confidentiality is provided in W. Va. Code ? 11-10-5v, which requires the Tax Commissioner to disclose to the State Treasurer the name, last known address and social security number, or federal employer identification number, as applicable, of persons or businesses, including joint or combined filers, to which tax refund checks have been issued by this state, which checks have gone unclaimed or uncashed for a period of more than six months after the issuance date of the check. Additionally, if the information is included in a tax division database, the Tax Commissioner must disclose to the State Treasurer the date, check number, warrant number, transaction identification number, invoice number, and amount of any such unclaimed or uncashed refund check, and the Tax Commissioner's confirmation or denial of confirmation, as applicable, that the tax refund is currently due and payable to the payee or payees to whom the unclaimed or uncashed check was originally issued.

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person other than the holder or its representative who has not in writing identified the property to the owner is not an indication of interest in the property by the owner.

An indication of an owner's interest in property includes:

(1) The presentment of a check or other instrument of payment of a dividend or other distribution made with respect to an account or underlying stock or other interest in a business association or financial organization or, in the case of a distribution made by electronic or similar means, evidence that the distribution has been received;

(2) Owner-directed activity in the account in which the property is held, including a direction by the owner to increase, decrease or change the amount or type of property held in the account;

(3) The making of a deposit to or withdrawal from a bank account; and

(4) The payment of a premium with respect to a property interest in an insurance policy; but the application of an automatic premium loan provision or other nonforfeiture provision contained in an insurance policy does not prevent a policy from maturing or terminating if the insured has died or the insured or the beneficiary of the policy has otherwise become entitled to the proceeds before the depletion of the cash surrender value of a policy by the application of those provisions.

Property is payable or distributable for purposes of the UPA notwithstanding the owner's failure to make demand or present an instrument or document otherwise required to obtain payment.

Observation: When applying the preceding presumptions and determining the state to which the abandoned property should be reported, see ? 1105, infra, the holder should keep in mind that Congress may have enacted legislation directly impacting the treatment of unclaimed property. Some examples of where federal law impacts state unclaimed property laws include, but are not limited to:

(1) 12 U.S.C. ? 2501 et seq. (disposition of abandoned money orders and travelers checks), providing that the state of purchase, as shown in the books and records of the financial organization or business association, shall be entitled exclusively to escheat or take custody of the sum payable on such abandoned instruments;

(2) 12 U.S.C. ? 24 (National Bank Act) and 12 U.S.C. ? 1461 et seq. (Home Owners Loan Act) allowing national thrifts to issue gift cards with dormancy/service fees and expiration dates preempting state laws prohibiting dormancy/service fees and expiration dates on this type of gift card; and

(3) The Employee Retirement Income Security Act of 1974 (ERISA), although the scope of preemption is still subject to debate.

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? 1103 Contents of safe deposit box or other safekeeping depository Law: W. Va. Code ? 36-8-3. Regulation: WVCSR ? 112-5-4.

Property held in a safe deposit box or other safekeeping depository in this State in the ordinary course of the holder's business, and proceeds resulting from the sale of the property permitted by other law, are presumed abandoned if the property remains unclaimed by the owner for more than five years after expiration of the lease or rental period on the box or other depository.

At least two employees of the holder must open and inventory the contents of a safe deposit box. The holder of the box must then seal the property in storage boxes or envelopes for safekeeping and attach a copy of the inventory to each container.

The State Treasurer is required to offer for public sale property recovered from safe deposit boxes.

When there is a valid lien or a contract between the holder and owner, the State Treasurer may reimburse the holder for the cost of opening the safe deposit box, unpaid rent, and storage charges. The Treasurer reimburses the holder from the proceeds of the sale of the contents of the safe deposit box, after deducting the expense incurred in selling the property. The amount of reimbursement to the holder may not exceed the amount remaining after deduction of the expenses. No other charges are deductible unless otherwise authorized by law or expressly provided by lawful contract with the owner of the box.

? 1104 Rules for taking custody of unclaimed property Law: W. Va. Code ? 36-8-4.

Except as otherwise provided in the UPA or by other law of this State, property that is presumed abandoned, whether located in this or another state, is subject to the custody of this State if:

(1) The last known address of the apparent owner, as shown on the records of the holder, is in this State;

(2) The records of the holder do not reflect the identity of the person entitled to the property and it is established that the last known address of the person entitled to the property is in this State;

(3) The records of the holder do not reflect the last known address of the apparent owner and it is established that:

(i) The last known address of the person entitled to the property is in this State; or

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