1. UNCLAIMED PROPERTY
AND ESCHEATS
Presented By:
Robbie Howell
PoynerSpruill LLP
rhowell@poynerspruill.com
919.783.1170
www.poynerspruill.com
These materials have been prepared by Poyner Spruill LLP for informational purposes
only and are not legal advice. This information is not intended to create, and receipt of it
does not constitute, a lawyer-client relationship.

2. Overview
• General information regarding escheats and abandoned
and unclaimed property
• Examples of unclaimed property
• Not a tax, but like a tax
• Uniform Unclaimed Property Act
• Unclaimed property in NC
• When is the NC Unclaimed Property Act Triggered?

3. Overview
• When property is abandoned
• When NC law applies
• Exclusions from NC Unclaimed Property laws
• Reporting unclaimed property to the state
• Unclaimed property audits
• Industry specific considerations
• Trends
• Questions

4. Escheats & Abandoned, Unclaimed Property
• Escheat – Historically used to refer to the reversion of
property to the state upon the death of an intestate owner
without heirs. In practice the term is used more broadly
for reporting and delivering property to a state.
• The concept of escheat, which the Supreme Court says
has “ancient origins,” is based on English common law.
• Up until the 20th century, escheat applied only to real
property. States begin passing unclaimed property
statutes for personal property in the 1950s.

5. Escheats & Abandoned, Unclaimed Property
• NC law uses “escheat” to describe the process by which
real property (or sometimes money or other property
interests) are transferred or forfeited to the state’s
“Escheat Fund” when the owner dies intestate or dies
testate without disposing of property by will and without
leaving surviving heirs to inherit
• Now all 50 states, including DC, and some foreign
jurisdictions have adopted unclaimed property statutes

6. Escheats & Abandoned, Unclaimed Property
• Unclaimed property – used interchangeably with
abandoned property. Unclaimed properties are liabilities
retained by an individual or entity that are truly owed to
another individual or entity and have been held for the
dormancy period.
• Dormancy period – the period of time that property
remains inactive before it is presumed abandoned by state
law. Dormancy periods vary both by property type and by
state. The dormancy period is imposed by state statute.

7. Escheats & Abandoned, Unclaimed Property
• Owner – the individual to whom the property rightfully
belongs. Also known as the creditor. Owners can be
heirs of the original owner.
• Holder– any person or entity in possession of property of
another subject to the unclaimed property laws. The term
is used interchangeably in this context with debtor.
Successor holders are subject to the same statutory
obligations with respect to the property as the original
holder.

8. Escheats & Abandoned, Unclaimed Property
• Due diligence – the state’s requirement that holders
attempt to contact owners of the property when it becomes
dormant, and before it becomes escheatable property
• Activity – clear action taken by the owner, including
making a deposit or withdrawal, which provides evidence
of a continued interest in the property
• Holder domicile – the state of incorporation of the
holder’s business

9. Escheats & Abandoned, Unclaimed Property
• Custodian – an individual or entity that holds property
until it is delivered to the rightful owner. Most states’ laws
identify the state as the custodian of unclaimed property.
• Date of last activity – date of the owner’s last activity on
property or the owner’s contact with the holder

10. Escheats & Abandoned, Unclaimed Property
• Indemnification – protects the holder from loss in
connection with transferring the legal responsibility for the
unclaimed property to a third party (e.g., the state or an
unclaimed property reporting agent acting on behalf of the
state).
• Reciprocal agreement – agreement between states to
impose joint audit agreements and, in some cases, to act
as collection agents for each other

11. Examples of Unclaimed Property
• Bank accounts; unclaimed contents of a safety deposit box
• Uncashed checks
• Payroll checks; commissions
• Accounts receivable credit balances, refunds, and
customer deposits
• Rebates, gift cards, other stored value card items
• Insurance proceeds
• Utility deposits
• Securities-related property
• Mineral-related proceeds (royalties, etc.)

12. Not a Tax, But Like a Tax
• Unclaimed property is NOT a tax
– The state’s right to collect unclaimed property is the derivative rights
doctrine. The state stands in the shoes of the owner.
– A state does not need to have any constitutional minimum level of
contacts or nexus with the holder like it would were it collecting a tax from
the holder
– The majority of states do not provide relief for audit reach-back based on a
statute of limitations, as is usually the case with taxes
• Where statute of limitation provisions exist, the limitation period is typically
longer than a typical tax statute of limitation. Statute of limitations in North
Carolina is five years.
• Failure to report or the filing of a fraudulent report generally eliminates reach-
back relief afforded by limitation provisions
• Delaware has audited companies on years as far back as 1981

13. Not a Tax, But Like a Tax
• Unclaimed property is NOT a tax
– Few states provide for a traditional administrative process/remedy
as are typically available in the tax area. Litigation is sometimes
the only recourse available to holders that dispute an assessment.
– Record retention requirements are typically longer than those in
the tax area. The 1995 Uniform Act requires that holders retain
records for ten years after the report is actually filed.
– Many states use contract auditors in the area of unclaimed
property

14. Not a Tax, But Like a Tax
• But unclaimed property acts very much like a tax
– Annual filing/reporting requirement
– Interest assessment for late filing/reporting
• Assessments range from 10% to 18%, or more
– Enforcement through audits
• But many audits are conducted by contract auditors
– Generates significant revenue for states
• California is holding over $6 billion in unclaimed property
• Delaware collects approximately 20% of its total annual revenues
through unclaimed property reporting

15. Uniform Unclaimed Property Act
• Uniform Acts were prepared in 1954, 1966, 1981, and
1995
• North Carolina has adopted, with some modifications, a
version of the 1995 Uniform Act
• “Uniform” is a misnomer – as was the case in North
Carolina, the legislative process has left its mark on each
state’s unclaimed property laws, leaving them with varying
dormancy periods, due dates for reporting, exemptions,
look-back periods, reporting forms, and voluntary
disclosure agreement procedures
– Filing deadline

16. Unclaimed Property in NC
• There is currently $344 million in the unclaimed property
fund
• Income derived from the investment or deposit of the
unclaimed property fund is distributed annually the State
Education Assistance Authority for grants and loans to aid
worthy and needy students

17. When is the NC Act Triggered?
• Property is deemed “unclaimed” if the apparent owner has
not communicated with the holder concerning the property
and has not otherwise indicated an interest in the property
such as by:
– Cashing a check
– Directing activity with respect to an account in which the property
is held
– Making a deposit or withdrawal
– Payment of a premium
– Activity in another account with the same holder

18. When is Property Abandoned in NC?
• Property is deemed “unclaimed” if the apparent owner
has not communicated with the holder concerning the
property and has not otherwise indicated an interest
in the property for the length of the dormancy period:
– Selected property types
• Traveler’s checks – 15 years
• Time deposits – 10 years after the later of initial maturity or date of last
indication by owner of interest
• Money order, cashier’s or certified check – 7 years
• Stock - 3 years of an unclaimed cash dividend, returned mailing, or the
discontinuation of mailings
• Business debt – 3 years from the date of unclaimed interest
• Dividends – 3 years of an unclaimed dividend

19. When is Property Abandoned in NC?
– Selected property types
• Demand or savings deposit – 5 years from an indication of interest
• Gift cards – 3 years from the date of sale, but only 60% of the
unredeemed portion of the face value of the card is deemed
abandoned
• Wages – 1 year from the date the wages are payable
• Utility refund – 1 year after the deposit is payable
• All other property – 5 years after the owner’s right to demand the
property or after the obligation to pay or distribute the property arises,
whichever first occurs.

20. When Does NC Law Apply?
• Property that is presumed abandoned, whether located in
NC or elsewhere, is subject to the custody of NC if, for
instance, the last known address of the apparent owner,
as shown on the holder’s records, is in NC, or the holder’s
records do not reflect the last known address of the
apparent owner and it is established that the last known
address of the person entitled to the property is in NC.

21. When Does NC Law Apply?
• What happens when another state disagrees?
– Texas v. New Jersey, 379 U.S. 674 (1965)
• Interesting circumstances
– Original jurisdiction case; Article III, Section II of the Constitution.
– Under the Due Process Clause of the 14th Amendment, property can
escheat to only one state.
– Texas, New Jersey and Pennsylvania all have claims on Sun Oil
Company’s abandoned intangible personal property.
– Sun Oil operated in Pennsylvania, was incorporated in New Jersey, and
Texas claimed it had the most significant contacts with the property.
– Sun Oil claimed no interest in the property, but asked to be protected from
double liability.
– Court indicates that as the states lack the power to create a rule for this
situation and no federal statute applies, it must create a rule to settle the
dispute.

22. When Does NC Law Apply?
• What happens when states disagree?
– Texas v. New Jersey, 379 U.S. 674 (1965)
– Supreme Court says the following priority rules shall apply
• First to the state of the owner’s last known address
• To the holder’s state of incorporation or domicile if the owner’s address is not
known
• To the holder’s state of incorporation or domicile if address of apparent owner
is in a foreign country and if holder is incorporated or domiciled in the United
States
• If owner is unknown or no record of any address, and state of domicile of the
holder has no law providing for escheat of the property, approximately 35
states’ statutes require reporting if the transaction giving rise to the property
occurred in the state. This rule lacks support from the Supreme Court.

23. When Does NC Law Apply?
• What happens when states disagree?
– Texas v. New Jersey, 379 U.S. 674 (1965)
• Court confirms that for tangible personal property, the unquestioned
rule is that only the state in which the property is located may escheat
• As a practical matter, most states interpret their unclaimed property
laws as broadly as constitutionally permitted by Texas v. New Jersey

24. Exclusions from NC Unclaimed Property Law
• The following items are specifically excluded in NC from
the definition of unclaimed property
– Forfeited reservation deposit
– Gift cards bearing certain provisions
– Prepaid calling card issued by a public utility
– Certain buyer deposits
– Business to business credits
– Lottery prizes

25. Reporting Unclaimed Property to NC
• Unclaimed property reports are due on October 31 of each
year and cover the 12 months next preceding July 1 of that
year
• An extension may be requested and granted upon good
cause shown
• A reasonable dormancy (service) charge may be imposed
by a holder with respect to reported unclaimed property if
there is a valid and enforceable written agreement
between the holder and owner providing for the imposition
of the charge

26. Reporting Unclaimed Property to NC
• Due diligence requirements
– Provided by statute
– NC
• Good faith effort to locate owner required
• Holder must send written notice, by first-class mail, to the last known address
between 60 and 120 days before reporting the subject the unclaimed property
at issue to NC
• Notice must contain a description of the property and a statement as to the
amount of the property
• Name and address of the holder
• Indication that the property will be placed in the custody of the state
• No penalties for not performing due diligence, but holder must submit an
affidavit with annual report that it has performed due diligence

27. Reporting Unclaimed Property to NC
• Due diligence requirements
– Failure to perform due diligence can bring unwanted attention from
a state
– Example
• A contingent fee auditor discovers an uncashed payroll check and the holder
reports it to a state without performing any due diligence. Later, a third party
service notifies the payee of the unclaimed property. The payee has been
continuously employed with the holder, is still employed by the holder, and
could have been easily located by performing due diligence.
– State reasonably suspects that the holder is not careful with
respect to its unclaimed property reporting and initiates additional
inquiries

28. Reporting Unclaimed Property to NC
• Report of unclaimed property
– Property description
– Name and last known address of owner
– Tax identification number of owner
– Date the property became payable
– Date of the last communication with owner

29. Reporting Unclaimed Property to NC
• Items valued at under $50 can be reported to NC in
aggregate, without identifying information
• Upon filing the report, the property shall be paid or
delivered to the state
• A holder that remits unclaimed property to the state in
accordance with the law shall not be liable to an apparent
owner and must be indemnified against any claims by an
apparent owner
• In certain circumstances, a holder may request the
property be returned

30. Unclaimed Property Audits
• As soon as a holder receives an audit notice, it should
retain counsel
– When deciding whether to seek the assistance of
consulting/accounting/law firms, consider:
• Unauthorized practice of law considerations
• Privilege / work product protections
• Audits can last up to five years or more, and holders often
eventually settle on unfavorable terms due to audit fatigue
• Most audits are performed by contingent fee auditors

31. Unclaimed Property Audits
• Most states have only skeleton audit staff, which is
logistically unable to audit a sufficient number of the
holders that must report to the state
– However, New York State employs a full complement of unclaimed
property auditors
• Contingent fee auditors customarily collect in the range of
12% to 17% of the amount that is discovered and remitted
to the state
• Contingent fee auditors typically have agreements with
most states so that once a holder is audited, the contract
auditors can audit on behalf of many or most states

32. Unclaimed Property Audits
• Request a non-disclosure agreement from any contingent
fee auditor before providing any records
• Attempt to limit the scope of an audit
• Statute of limitations – North Carolina may not audit a
holder more than five years after the holder filed a report
identifying the property. Exceptions for failure to file
report and fraud.

33. Unclaimed Property Audits
• Voluntary disclosure – Given the increasingly aggressive
posture taken by many states with respect to unclaimed
property, holders of abandoned property who have not
reported and delivered such property to the appropriate
state should consider approaching the state and
attempting to negotiate a voluntary disclosure agreement.
Often, holders can avoid or limit retroactive liability and the
imposition of any applicable penalties and interest.
– Allows the holder to control its records and the presentation of
information. By reporting through voluntary disclosure, holders
can avoid the invasive audit process.

34. Unclaimed Property Audits
• Amnesty programs – States periodically offer amnesty
programs. For example, California’s 2002 amnesty
program provided for the waiver of interests (otherwise
imposed at a rate of 12%).
– Some states impose interest at such high rates (at 18% or more)
that the interest effectively acts like a penalty.

35. Unclaimed Property Audits
– The legality of contingent fee audits may vary by jurisdiction.
• Sears v. Parsons, 260 Ga. 824 (1991) – The Georgia Supreme Court
held, in a tax case, that contingent fee audits violate public policy
• Appeal of Philip Morris U.S.A. 335 N.C. 227 (1993) – The North
Carolina Supreme Court held that contingent fee audits do not violate
public policy
• South Carolina and Illinois do not permit contingent fee auditors to
audit, on behalf of South Carolina, entities that are organized in South
Carolina.
– Audit techniques – It is common practice for unclaimed property
auditors to use some type of estimation or extrapolation technique
to calculate the amount of unreported unclaimed property
– The 1995 Uniform Act specifically allows unclaimed property
administrators to use reasonable estimation techniques

36. Unclaimed Property Audits
• Relief from penalties and interest
– The 1995 Uniform Act specifically provides that the administrator
may waive penalties and interest for good cause shown and shall
waive penalties and interest if the holder acts in good faith without
negligence.
• Most states will only impose penalties in extreme cases, and most
states will waive any interest if the holder cooperates with the audit.
However, some states, such as California and Texas, will not waive
interest

37. Unclaimed Property Audits
• Mitigating risk
– Timely file unclaimed property reports
– Maintain adequate books and records with respect to unclaimed
property
– Develop a practice and procedure regarding aged credit balances
• If the term “write-off” is used with respect to such aged credit balances,
there is likely a problem
– States identify audit candidates by comparing their reporting with
their financial data. If a company with billions in revenue is
reporting less than $100,000 a year in unclaimed property, it might
be a target for an audit.
– If the company files negative reports year after year, it is more
likely that it will be audited

38. Unclaimed Property Audits
• Mitigating risk
– Know that common audit triggers include recent mergers or
acquisitions
– Create internal procedures to notify owners of potential escheat
prior to the end of the dormancy period
– There are entities that represent holders involved in unclaimed
property audits (e.g., Keane Unclaimed Property Reporting
Service, Unclaimed Property Recovery & Reporting, etc.). Firms
such as these assist companies in locating owners of property that
would otherwise escheat.

39. Industry Specific Considerations
• Internal controls for publicly traded companies
– Failure to account properly for an unclaimed property liability could
be a violation of generally accepted accounting principles (GAAP)
– Mistreatment of unclaimed property could overstate income and
may require restatement of income on prior year financial
statements

40. Industry Specific Considerations
• Safe deposit boxes
– If rental fees are 90 days past due, bank must send notice by
registered or certified mail, return receipt requested, to the last
known address of the lessee, demanding payment within 30 day.
– After 30 days, pursuant to specific procedures, the box may be
opened and the contents removed, sealed, identified by owner,
and stored in the general vault of the bank
– A certificate with the name of the lessee, the date of the opening,
and the contents of the box shall be prepared, stored with the
contents, and a copy sent to the lessee, by registered or certified
mail, return receipt requested

41. Industry Specific Considerations
• Safe deposit boxes
– After two year from the delivery of the certificate to the lessee, the
bank may send a final notice to the lessee, indicating that unless
the accumulated charges are paid within 30 days of the date of the
mailing of the notice, the contents will be escheated
– The bank shall submit to the State Treasurer a verified inventory of
all of the contents of the box. The bank may deduct from any cash
of the lessee an amount equal to the accumulated charges
– Any property, including documents or writings of a private nature,
with no apparent financial value, may be destroyed if the State
declines to receive the property
– State property auctions

42. Trends
• Legislative
– Shorter dormancy periods
– Increased aggregation thresholds. Holders are not required to
provide identifying information for holders with respect to amounts
of less than $50. Accordingly, once amounts beneath this
threshold are reported to the state, it is extremely unlikely the
property will ever be returned to the owner.

43. Trends
• Administrative
– Anecdotally, we hear that audits are becoming increasingly
aggressive and contentious
– Cash strapped states need to find new sources of revenue
– Areas of recent interest to examiners include lapsed insurance
policy handling, returned mail procedures, annuity maturity dates,
and death benefit interest crediting on unpaid death benefits.

44. Questions?
Robbie Howell
Attorney
PoynerSpruill LLP
rhowell@poynerspruill.com
919.783.1170
www.poynerspruill.com

45. IRS Circular 230 Disclosure:
To comply with requirements imposed by the IRS, we inform you
that any U.S. federal tax advice contained herein, unless
specifically stated otherwise, is not intended or written to be
used, and cannot be used, for the purposes of (i) avoiding
penalties under the Internal Revenue Code or (ii) promoting,
marketing or recommending to another party any transaction or
matter herein.