The deadline for filing a 2014 Abandoned and Unclaimed Property Report with the Pennsylvania Treasury Department is April 15. Major changes were made to PA's Disposition of Abandoned and Unclaimed Property Act (the "Unclaimed Property Law") by Act 126 of 2014 ("Act 126"), which impact reporting requirements for 2014 and subsequent years as well as the State Treasurer's enforcement powers. Some changes, including the shortening of the "holding period" for various types of property, modifications to the standards for determining when the holding period begins to run, and expansion of the State Treasurer's enforcement powers, took effect on July 10, 2014. Other changes, primarily registration and regulatory requirements for unclaimed property "finders," took effect on January 6, 2015.
Notably, Act 126 specifically authorizes the State Treasurer to hire contract auditors to conduct unclaimed property audits on its behalf. Under this authority, the State Treasurer has contracted with Kelmar Associates, LLC, which has developed a reputation for using very aggressive estimation techniques when performing unclaimed property audits, to perform at least some unclaimed property audits on its behalf.
Shortening of "Holding Period"
Act 126 shortened the dormancy or "holding period" for most types of unclaimed property from five years to three years. Exceptions to the standard holding period still exist for wages and other compensation for personal services (2 years), property distributable in the course of dissolution (2 years), money orders (7 years) and travelers checks (15 years). Also, gift certificates or cards with expiration dates, but no service fees, are now reportable upon the later of 2 years from the expiration date or, in the case of store gift cards or general use prepaid cards, 5 years after the card was issued or funds were last loaded. "Qualified" gift cards and certificates (those with no expiration date or post-sale charges or fees) remain exempt from reporting requirements in Pennsylvania.
"Indicating an Interest in Property"
In most cases, the holding period for unclaimed property does not commence until after the last activity on an account or the last "indication of an interest in property." Prior to Act 126, the Unclaimed Property Law did not specify what constituted an indication of interest in property, although it did require that any indication of an interest in certain property held by financial institutions be "evidenced by a writing." Act 126 expanded the criteria for overcoming a presumption that property is "abandoned or unclaimed" by defining what constitutes an indication of interest in property and eliminating requirements that indications of interest be in writing. "Indicated an interest in property" is now specifically defined to include electronic and verbal contacts and communications.
Act 126 also expanded the definitions of "holder" and "owner" to include legal representatives of persons qualifying as holders and owners, and agents acting on behalf of holders.
Expansion of Enforcement Powers
The broad new enforcement powers given to the State Treasurer under Act 126 include expanded authority to require reporting by "holders," authority to share reports and examination records with other government agencies and with unclaimed property administrators in other states, and the authority to impose new civil and criminal penalties for noncompliance with the Unclaimed Property Law. Under prior law, the State Treasurer was authorized to examine a holder's records only if the Treasurer had "reason to believe that [the] holder [had] failed to report property that should have been reported" under the Unclaimed Property Law. See 72 P.S. § 1301.23(a) (prior to changes made by Act 126). This "reason to believe" requirement was eliminated by Act 126. Also, holders are required to provide the State Treasurer with information concerning any property for which the Treasurer makes an "inquiry." Thus, the Treasurer may seek information as to why certain property has been determined not to be reportable.
Act 126 further authorizes the State Treasurer to "contract with any other person to conduct the examination on behalf of the State Treasurer, the selection of whom shall not be questioned." (emphasis added). While holders cannot contest the selection of a contract auditor, they will obviously have the right to contest any inappropriate audit procedures employed by such auditors.
Cost Assessments Against Noncompliant "Holders"
If the examination of a business association or financial institution results in the disclosure of unreported property, the State Treasurer is authorized to assess the cost of the examination against the holder at the rate of $200 a day for each examiner, or a greater amount that is reasonable and was incurred, provided that the assessment may not exceed the value of the property found to be reportable. 72 P.S. § 1301.23(e). Thus, business associations and financial institutions could be subject to cost assessments equal to the amount of any unreported property found during an examination by the State Treasurer, plus interest and penalties.
Increased Penalties
Under Act 126, if a holder fails, without proper cause, to report or to pay and deliver unclaimed property to the State Treasurer, the Treasurer may impose a penalty not to exceed $1,000 per day, beginning with the day after the report should have been filed and continuing each day thereafter until a proper report is filed. The State Treasurer may, however, waive all or a portion of the penalty for good cause. 72 P.S. § 1301.24(c).
Effective January 6, 2015, the amendments made by Act 126 also authorize the criminal prosecution of persons who fail to file unclaimed property reports or transfer unclaimed property to the State Treasurer. Such violations are classified as a third degree misdemeanor subject to a fine of up to $1,000.00 for a first offense and up to $5,000.00 for a subsequent offense.
Unclaimed Property "Finders"
Effective January 6, 2015, the Treasury Department is authorized to oversee "finders" – those who assist others with searching for and claiming unclaimed property for a fee. Individuals, other than attorneys and non-attorney representatives compensated on a non-contingent basis, will be required to obtain a certificate of registration from the State Treasurer prior to engaging in and receiving compensation for the location and recovery of unclaimed property. Certificates of registration will be valid for two years and may be renewed.
Under the new provisions, agreements or powers of attorney allowing "finders" to recover unclaimed property for owners are valid and enforceable only if the agreements are in writing and signed by the owner; clearly state the fee to be paid to the finder, which may not exceed 15% of the value of the unclaimed property; and contain certain additional information, including a valid certificate of registration number assigned to the "finder." The Treasury Department has authority to conduct investigations and to revoke, suspend or refuse to issue a certificate of registration under certain circumstances, provided the finder or applicant is afforded appropriate administrative due process rights. Persons who violate the statutory provisions regarding finder contracts and registration are subject to the same criminal sanctions as those discussed above for violations of the reporting and transfer provisions.
