The Pandemic Forced the Cancellation of Your Nonprofit's Event - Now What?

Venable LLP

Venable LLP

The COVID-19 pandemic caused many nonprofits to postpone or cancel conferences, conventions, trade shows, and other events. This has often meant working with nonprofit organization members and attendees to coordinate refunds or credits of registration fees. Despite what otherwise seems like a person's clear interest in receiving funds owed to them, this process is not always straightforward. Emails bounce back, attendees can be unresponsive, and other challenges may leave host organizations wondering what to do with refunds or credits that belong to their registrants—the property owners.

These funds may be regulated by states' abandoned and unclaimed property laws. Compliance with these laws may require your nonprofit organization to report and transfer these funds to the proper state authorities according to specified rules, and understanding the basics of unclaimed property rules is critical for avoiding penalties for noncompliance with those requirements.

Unclaimed Property Laws

All 50 states and the District of Columbia have escheat or abandoned property laws. Although the specifics of these laws vary, certain general principles exist. To start with, a state's treatment of unclaimed property often depends on the type of property at issue—whether it is tangible or intangible. Within these classes, there may be further sub-type classifications. For example, intangible property may be further classified between uncashed paychecks, cashier's checks, safe deposit box content, and various other specific categories, but there is also usually a catchall category under state law for "miscellaneous intangible property" comprising refunds, credit balances, customer overpayments, and similar amounts. Additionally, the length of time until the property is deemed abandoned will depend on how the property is classified. Many property classes are deemed abandoned after one to five years, with miscellaneous intangible property very commonly deemed abandoned after the owner of the property has not had contact with the holder of the property for three years. Once property is deemed abandoned, state law may kick in and require the property to be turned over to the state—that is, the property may escheat to the state—and the procedures and requirements for doing so will depend on the applicable state law.

Priority Rules: Determine Which State's Law Applies

Because abandoned property laws vary from state to state, it is critical to determine which law applies to the unclaimed property your nonprofit organization may be holding, such as those unclaimed refunds or credits after a canceled or postponed event. Unfortunately, for an event with attendees traveling from multiple states, this can be a complicated question to answer. Applicable law is determined on an owner-by-owner basis (said another way, on an attendee-by-attendee basis in the event context), so a nonprofit may be required to identify and comply with numerous states' laws in the wake of a canceled event.

The general rule is that the state of the property owner's last known address is the state whose escheat law applies to that property and, thus, the state that takes power over the abandoned property, if, in fact, that state has a law requiring escheat of the specific type of property at issue. But—it depends. Exceptions to this rule may apply if there is no last known address for the property owner or if a given state's escheat law does not regulate the type of property at issue. Those exceptions may provide for the state of domicile of the property holder (i.e., your nonprofit organization) to lay claim to the property, or even another state that has significant contacts with the property may be able to lay claim.

What Can—and Should—Your Organization Do?

While the exact processes that an organization must follow when dealing with unclaimed property will be fact-specific, consider the following general framework:

  • The first step is to determine which law applies. Take stock of the unclaimed refunds or credits in your organization's accounts and determine the last known address of the attendees who are owed these refunds. In many cases, this will determine which states' escheat laws your organization must consider. Otherwise, you may need to consider the domicile or significant contacts rules for determining which law applies.
  • Next, identify the type(s) of property at issue. Confirm the exact classification of the refund amounts under the applicable state's rules. Although conference registration credits often may be considered intangible property, whether this is subject to rules as "miscellaneous intangible property" or as a "credit balance" or as some other particular sub-type will affect the required processes for reporting unclaimed property.
  • Consider whether your organization's existing policies and agreements regarding cancellation of meeting attendance can serve to lessen the risk that revenue received must be treated as an unclaimed credit. For example, an agreement that permits a member to apply registration fees for a canceled event toward other organization activities may expressly provide that credits unused after a certain amount of time has passed will be considered contributions to the organization. This approach may be helpful to avoid reporting and other obligations, depending on the particular state.
  • Once these details are confirmed, your organization will be able to confirm the length of time before the property will be deemed abandoned or unclaimed and, thus, whether and when your organization will be required to report the property to the state with jurisdiction over it.
  • Most states require that an organization perform due diligence, make a good faith effort to locate and notify the owner of their property, and enable the owner to retrieve their property before it escheats to the state. The specific form of required notice varies from state to state, and may depend on the character and value of the property.
  • If your organization is unable to contact the attendee who is entitled to a refund or credit, state reporting requirements may arise. The organization may be required to report certain information to each state and provide the unclaimed property—the refund or credit—to each state. As you may have guessed, the exact format and contents to be reported vary from state to state.
  • Finally, keep in mind that an organization that fails to comply with abandoned property laws may be liable for penalties. These penalties will usually increase with time, which makes early compliance especially important. These penalties can also be increased for "willful" noncompliance, a standard that, again, will depend on state law.

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Although we've written previously about how unclaimed property laws may present a possible (and unconventional) fundraising method in certain cases by providing for your nonprofit to collect intangible personal property owed to it, the flip side of these same laws is that they may place obligations on your organization if you find yourself holding someone else's unclaimed property, such as not being able to refund attendees' registration fees for your organization's canceled event. If your organization has contacted its attendees about refund or credit options for a canceled meeting and has received no response, it may be time to begin planning for the escheat process. Although the process of complying with these laws may seem daunting, especially when dealing with attendees from all over the country, early detection of these issues can reduce your organization's exposure to non-compliance with state authorities.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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