Michigan Unclaimed Property Notice

by Heather Vanderborg 13. December 2013 09:03

 

On October 29, 2013, Michigan passed into law, amendments to the Uniform Unclaimed Property Act (the “Act”) which imposes certain standards regarding the conduct of unclaimed property audits. 

The State Treasurer or its duly authorized agents (collectively, the “State”) are now required to perform all examinations in accordance with generally accepted auditing standards to the extent applicable. Further, the State is required to give those companies who have been audited or whose books, records, and papers had been examined, a complete copy of the audit report in printed or electric format. 

In addition, the State is permitted to determine the amount of any abandoned or unclaimed property due and owing based upon a reasonable method of estimation consistent with the auditing standards when the company being examined does not have “substantially complete records,” as defined in the bill. 

If, however, the company had previously been in compliance with State Unclaimed Property laws, had filed all required reports, and maintained substantially complete records, the audit would change to in the following ways:

Examination cannot be based on an estimate; and 

State would have to consider all evidence presented by the holder to remediate the findings. 

Finally, the administrator is required to file a request for rule-making to initiate rules on auditing standards within six months after enactment. 

History of Michigan Unclaimed Property: 

The Michigan Department of Treasury has gone through substantial efforts to educate the unclaimed property (“UP”) holder community doing business in Michigan regarding its abandoned property laws including: 

Conducted independent study of escheat compliance adherence for sample companies around 2010; 

Sent around 370,000 letters to holders on Michigan escheat law changes such as reporting deadlines changing to 7/1, dormancy period changes (from 5 years to 3 years); 

Initiated Amnesty Program for holders that filed by 1/31/2011; 

Sent additional notices on new escheat compliance requirements by 7/1/2011; 

Initiated 8 - 10 Michigan lead escheat audits for period 2010 – Current; 

Participated in 100s of piggyback Delaware lead audits through third party auditing firms; 

Adopted Business to Business exemptions for periods 4/1/2009 and forward only (no retroactive application); 

Adopted new VDA program effective for periods 7/1/2012 and after; and 

Governor signs new escheat audit guidelines. 

Potential Risks for Unclaimed Property Holders: 

• Piggyback audits performed by contingent fee auditors representing in some cases over 25 states on a single audit.
 
• Penalties (25% automatically applied without ability for abatement) plus interest. 
• Look-back period for Michigan audits is generally 10 report years (15 years under old dormancy). 
• Business to business exemption does not apply retroactively.
 
• In the new statutory audit guidelines, the definition of “complete record” as used by some 3rd party auditing firms is any listing of transactions (e.g., check register) with address information for a period regardless whether a taxpayer has the ability to research it. 
Michigan VDA Program and Its Benefits: 

Voluntary compliance initiation and timeline: 

Step 1: Execute and sign Michigan Form 4869 – Michigan Unclaimed Property Voluntary Disclosure Agreement. 

Step 2: Prepare and file unclaimed property reports for current reporting period, including property for the previous 4 reporting years.

Step 3: Submit payment for the amount of unclaimed property reported, as the filing will not be complete until payment has been submitted. 

By participating in the Michigan VDA program, the following protections are afforded to voluntary compliance filers: 
Filers become current by virtue of filing a report and remitting payments for the current reporting year as well as the previous 4 years; 
Michigan Department of Treasury will assess interest 7/1/2012 and forward but they will not assess penalties on amounts reported under voluntary compliance; and although the State reserves the right to audit the holder after they have filed (all estimation techniques required to be supplied to State), the Department has indicated that this practice is unlikely for holders that file in good faith under the VDA program. 

Closing Considerations: 

Lastly, the following are key considerations which detail our best practices: 
Ongoing compliance 

Policy and procedures 

Robust record retention policies 

Due diligence letter process for resolving outstanding checks or credits in Account Receivables in a manner that will satisfy escheat review standards. 

Michigan Headquartered or Located Companies that are incorporated in Delaware: 

For companies headquartered/domiciled in Michigan that are incorporated in the State of Delaware, please review the following links below as Delaware’s deadline to enter into the new VDA program is swiftly approaching.
 
Links on Michigan 
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