Northeast & Mid-Atlantic – Unclaimed Property Update & Pending Legislation National Unclaimed Property Practice, BDO USA, LLP September 30, 2015

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Agenda 1. Unclaimed Property Overview

2. Unclaimed Property Extrapolation

3. Delaware Updates

4. Northeast & Mid-Atlantic State Summary & Updates

5. Legal Update

6. Questions

Unclaimed Property Overview

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Unclaimed Property Introduction: General Information All 50 states and the District of Columbia have enacted unclaimed

property laws.

The purpose of unclaimed property laws is to ensure the protection of abandoned property until the rightful owner is located. Moreover, states use any derivative funds earned on such property for the public good.

Unclaimed property is not a tax.

States actively pursue unclaimed property as an additional source of revenue for the state, which avoids raising taxes.

States’ unclaimed property laws apply to all entity types, including: - Corporations - S Corporations - Partnerships - Limited Liability Companies

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Unclaimed Property Introduction: What is Unclaimed Property?

Generally intangible personal property for which there has been no owner activity for a specified period of time (“dormancy period”).

Examples of unclaimed property:

• Uncashed payroll or commission checks • Uncashed payable/vendor checks • Gift certificates/gift cards • Customer merchandise credits, layaways, deposits, refunds or rebates • Overpayments/unidentified remittances • Suspense accounts • Unused/outstanding benefits (non-ERISA) • GR/IR (Goods received, not invoiced) • Miscellaneous income/bad debt expense accounts

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Unclaimed Property Introduction: Where Do I Report Unclaimed Property?

The Supreme Court of the United States in Texas v. New Jersey, established the following unclaimed property sourcing rule: - First, to the state of the rightful owner’s last known address, if known, or

- Second, to the state of the holder’s incorporation (commercial domicile for

unincorporated entities).

Priority rules in Texas v. New Jersey were upheld in the subsequent cases Pennsylvania v. New York (escheat of money orders) and Delaware v. New York (unclaimed dividends and interest).

Although not sanctioned by the Court, some states have adopted a “transactional or throwback rule,” which provides that if both the state of the owner’s last known address and the state of the holder’s incorporation decline or fail to exercise jurisdiction over the unclaimed property, then the state in which the transactions giving rise to such property occurred has the right to claim the property.

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Dormancy Periods

“Dormancy Period”: A statutorily prescribed period that begins from the date of creation of the property type (e.g., check issuance date) and ends after the passage of a certain number of years (typically 1-5 years). Property becomes presumed abandoned when it has remained unclaimed during the statutory dormancy period.

State Wages

(years) A/R

Credit Balances (years)

Third Party

Dividends (years)

Gift Cards (years)

A/P Checks (years)

All other property (years)

B2B

DE 5 5 5 5 5 5 No

NY 3 3 3 5 3 3 No

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Who are these Third-party Auditing Firms?

# Firm Comments

1 Kelmar Associates, LLC Leading audit firm for DE and certain other states

2 UPCH Owned by Xerox; maintain contracts with over 25 states

3 Audit Services US Maintain contracts with 46 states

4 Verus Financial LLC Leader in Life Insurance audits

5 Treasury Services Group LLC (TSG) Bought Bankrupt APEX; newer firm 2012-2013

6 Discovery Audit Services LLC Newer Firm outside LA; Performing audits for LA since 2003

7 Hertz & Herson Newer Firm, started in 2012-2013

8 Innovative Advocates Group, Inc. Newer Firm, started in 2013

Unclaimed Property Extrapolation

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Unclaimed Property Extrapolation

Many states, including Delaware, use extrapolation techniques to establish a historic liability, at times dating back to 1986, in the event all records requested are not available and/or complete.

The determination of whether or not to extrapolate may depend on factors such as:

• Historical unclaimed property reporting practices

• Filing history

• Materiality of errors found for periods where records were reviewed

• Record availability and reliability by property type

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EXPOSURE QUANTIFICATION: PAYROLL EXTRAPOLATION

Unremediated Payroll O/S Checks – 12/31/2004

Federal 1120 Payroll – 12/31/2004= % x Federal 1120 Payroll

(prior years)

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EXPOSURE QUANTIFICATION: ACCOUNTS PAYABLE EXTRAPOLATION

Accounts Payable O/S Checks - 12/31/2004

Federal 1120 Sales – 12/31/2004

= % x Federal 1120 Sales(prior years)

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• If all sales are on account, the following extrapolation can be used:

• Holder should review credits written off (e.g. to miscellaneous income/expense account) to any amounts of bad debt as this is a viable position to offset net credits that is often overlooked.

EXPOSURE QUANTIFICATION: ACCOUNTS RECEIVABLE EXTRAPOLATION

Unremediated Net Credits1 –

12/31/2004

Sales -12/31/2004

= % x Sales (prior years)

1 In many cases the net credits were written off to miscellaneous income, allowance for doubtful accounts, or bad debt expense and documentation to prove it is not escheatable is unavailable.

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Exposure Quantification

Total Unclaimed Property Liability (ALL STATES) for Base Period (a)

Escheat Percentage (c) (Unclaimed Property

Liability(a)/Total Sales (b)) Base Period =

Total Sales (1120) for Base Period (b)

Escheat Percentage(c) * Total Sales in Non-Base

Period(d)

Total Projected

Liability(e)

Projection Years

=

Total Projected Liability(e) + Address Property(f)

Total Liability Owed

(Projection and Address) =

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Example of the Impact of Extrapolation Year Sales

Total Unremdiated Unclaimed Property

Unremediated Unclaimed Property w/ Delaware Address

Extrapolated Liability Sourced to Delaware

Total Delaware Assessment

2005 750,000,000 250,000 12,500 12,500 2004 700,000,000 650,000 5,500 Use 5,500 2003 680,000,000 320,000 11,200 Actual 11,200 2002 675,000,000 90,000 8,300 Data 8,300 2001 665,000,000 110,000 4,500 4,500 2000 550,000,000

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225,072 225,072 1999 625,000,000 255,764 255,764 1998 600,000,000 245,533 245,533 1997 550,000,000 225,072 225,072 1996 540,000,000 220,980 220,980 1995 525,000,000 214,841 214,841 1994 510,000,000 208,703 208,703 1993 495,000,000 202,565 202,565 1992 475,000,000 194,380 194,380 1991 460,000,000 188,242 188,242 1990 425,000,000 173,919 173,919 1989 400,000,000 163,689 163,689 1988 390,000,000 159,597 159,597 1987 365,000,000 149,366 149,366 1986 345,000,000 141,182 141,182 1985 250,000,000 102,305 102,305 1984 275,000,000 112,536 112,536 1983 240,000,000 98,213 98,213 1982 225,000,000 92,075 92,075 1981 185,000,000 75,706 75,706

Actuals 3,470,000,000 1,420,000 42,000 3,449,741 3,491,741 Error Rate 0.04092% Application of Penalties and Interest 4,364,676 Total Delaware Assessment 7,856,416

Delaware Law Change – Senate Bill No.141

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DE Law Change – Senate Bill No.141 Senate bill introduced in the DE State Senate was signed into law on July 22,

2015 and intends to improve the fairness and help foster compliance with DE’s unclaimed property program through the following:

Extension of DE Voluntary Disclosure Agreement “VDA” Program

Modification of audit and VDA look-back periods

Required annual compliance filing reminder from State Escheator

Reinstatement of interest with a reduced aggregate cap of 25%

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DE Law Change – Senate Bill No.141 Extension of DE Voluntary Disclosure Agreement “VDA” Program

The company is notified in writing by the DE SOS that it may enter into a VDA program and the company does not enter the VDA program within 60 days from the mailing date of the invitation to participate in the VDA program; or

A company that has entered into the DE VDA program and has failed to comply with its terms and conditions.

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DE Law Change – Senate Bill No.141 Modification of audit and VDA look-back periods

Under the new legislation, the audit look-back periods are adjusted as follows:

Audit Notice Audit Issue Period Look-back Period

Pending Examination(audit began prior to 7/1/15)

1/1/91 – forward(transaction years)

For audits that begin in 2017 this is a 14 year reduction off current audit look back periods to 1981[1]

This is a forward “rolling” 22 year look-back period in contrast to current fixed 1981 look-back date

3 1/1/17 and after

22 years prior to calendar year in which a company is provided written notice of the examination (transactions years)

This is 5 year reduction off current 1981 audit look-back period

2 7/1/15 – 12/31/16This is a 10 year reduction off current 1981 audit look-back period

# Comments

11/1/86 – forward (transaction years)

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DE Law Change – Senate Bill No.141 Modification of audit and VDA look-back periods

Under the new legislation, the VDA look-back periods are adjusted as follows:

VDA Filing VDA Payment Date Look-back Period Date

1/1/96 – forward(transaction years)

1/1/96 – forward(transaction years)

DE SOS at sole discretion can extend due date of VDA completion and payment.

This appears to be a forward “rolling” 19 year look-back period in contrast to current fixed 1993 or 1996 look-back periods based on application filing date

Within 2 years of DE SOS fully executed DE VDA - 1 Form

31/1/2017 - Forward

19 years prior to year DE VDA – 1 Form was accepted by DE SOS

6/30/2016This is a 3 year reduction off current DE SOS VDA look-back periods to 1993

29/30/14 – 12/31/16

Within 2 years of DE SOS fully

DE SOS at sole discretion can extend due date of VDA completion and

# Comments

1 7/1/13 - 9/30/14

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DE Law Change – Senate Bill No.141 Required annual compliance filing reminder from State Escheator

The State Escheator must send a notice 120 days prior to the State’s March 1st unclaimed property report deadline to all those who have filed unclaimed property returns in the past five years.

Holders must identify in the report a designated employee of the company who will serve as a contact with the State for all correspondence with the state related to the reporting and remittance of unclaimed property.

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DE Law Change – Senate Bill No.141 Reinstatement of interest with a reduced aggregate cap of 25%

Reinstate the imposition of interest at .5% per month on outstanding unpaid amounts from date the amounts or property is due until paid unless such failure is due to reasonable cause.

Interest would be capped at 25% of the amount required to be paid and presumably interest would be imposed on audits and for property reported on annual compliance returns that was reported late.

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DE Law Change – Senate Bill No.141 Key Points and Closing Considerations:

DE law’s continue to change to provide holders with more opportunities to address unclaimed property matters.

Still several areas of uncertainty:

Interest application – automatic or case by case

How is reasonable cause defined and applied

Testing methodology (DE SOS Implementing Guidelines)

Most of the above concerns are alleviated via participation into DE SOS VDA program as it waives I/P and right to audit (as long as certain conditions are met).

DE VDA period is 2 years; far less when compared to typical audit of 3-7 years

DE VDA allows voids 90+ days whereas audit is 30+ days

Northeast and Mid Atlantic State Summary Matrix

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NE & Mid-Atlantic Summary Matrix State Dormancy

Range

Typical Audit Reach Back Based on

Experience Statute of Limitations Record

Retention Formal VDA

Program VDA Reach Back Penalties &

Interest Waived in VDA

Exemptions Notes

Maine 1-3 Typically 10 Years + Dormancy

10 Years + Dormancy for filings; No Statute if Company did not file

10 Years + Dormancy

No - Informal VDA Available

Typically 10 Years + Dormancy Case by Case Basis Yes Gift Cards: Exempt if sold after December 31, 2011 and company issues less

than $250,000 in gift obligations/year

New Hampshire 1-5 1987 None 10 Years +

Dormancy No - Informal VDA

Available Typically, 10 Years +

Dormancy Case by Case Basis Yes Gift Certificates issued for store merchandise credit are exempt from escheatment if < $100.

Massachusetts 3 6 Years + Dormancy for filers; TBD for non-filers

6 Years + Dormancy for filings; No Statute if Company did not file

6 Years + Dormancy Yes

Not specified: Typically, 9 years (6 +

dormancy) Yes Yes B2B exemption is a deferral for A/R and A/P - ongoing business relationship

required for exemption. Gift Cards.

Connecticut 1-3 10 Years + Dormancy None None No - May be able to

request informal VDA

N/A N/A Yes Gift Certificates

New York 3-5 1992 None 5 Years + Dormancy Yes - VCA 1992 Yes No

New Jersey 1-3 15 Years + Dormancy 10 Years + Dormancy for filings; No Statute if Company did not file

5 Years + Dormancy Yes

10 Years + Dormancy, No reach back for

equity related property

Yes for Penalties No for Interest No

Pennsylvania 2-3 15 Years + Dormancy 15 Years + Dormancy on filed reports None Yes 10 Years + Dormancy Yes Yes If the gift certificate does not include an expiration date and no fees are charged, it is deemed a qualified gift certificate and escheatment does not apply.

Maryland 3 8 Years + Dormancy 5 Years unless fraud or no report filed 8 Years + Dormancy Yes 5 Years + Dormancy Yes Yes B2B Exemptions cover A/R, A/P and Rebates to Individuals. Gift certificates are

exempt.

Washington, D.C. 1-3 10 Years + Dormancy 10 Years + Dormancy for filings; No

Statute if Company did not file 10 Years + Dormancy

No - Informal VDA Available

Typically 10 Years + Dormancy Case by Case Basis No

Virginia 1-5

10 Years + Dormancy or back to report year 1985 if the holder has not filed any reports

5 Years if filed; 10 years for fraudulent or no report filed

10 Years + Dormancy Yes

5 Years + Dormancy for Filings; 10 Years + Dormancy if no report

is filed

Yes Yes B2B Exemptions cover A/R and A/P. Gift Cards.

West Virginia 1-5 10 Years + Dormancy 10 Years + Dormancy for filings; No Statute if Company did not file

10 Years + Dormancy Yes 10 Years + Dormancy Yes Yes Gift Cards, If redeemable in merchandise only, the amount abandoned is

deemed to be sixty percent of the certificate's face value.

North Carolina 1-5 Not specified; Likely 5 Years + Dormancy or company inception

5 Years + Dormancy for filings; No Statute if Company did not file

5 Years + Dormancy Yes 1998 Forward Yes Yes B2B Exemption covers A/R Only. Gift Cards - Exempt if does not expire or

states it does not expire in NC.

South Carolina 1-5 10 Years + Dormancy 10 Years + Dormancy 10 Years + Dormancy Yes 10 Years + Dormancy Yes No

Georgia 1-5 10 Years + Dormancy None 10 Years + Dormancy Yes 10 Years + Dormancy Yes No

Florida 1-5 10 Years + Dormancy 10 Years + Dormancy 5 Years + Dormancy Yes 10 Years + Dormancy Yes Yes

De Minimus Exemption - Items $10.00 or less are exempt credit balances, customer overpayments, security deposits and refunds. Gift Cards: Exempt if does not expire or charge fees.

Tennessee 1-5 10 Years + Dormancy 10 Years + Dormancy; Tolled if no or fraudulent reporting or administrator initiates an audit of report

10 Years + Dormancy Yes 7 Years from Entry

Date Yes Yes B2B exemption is a deferral for A/R and A/P - ongoing business relationship required for exemption. Gift Cards: A gift certificate issued after 12/31/98 is not subject to escheatment if there is no expiration date or dormancy fees.

Delaware 5

*Pending Exam: 1986 *7/1/15 – 12/31/16 Exam Notice: 1/1/1991 *1/1/17: 22 Years Prior to Notice

For filings after 7/22/2002, 3 years after date report is filed or 6 years if 25% understatement in the report. For reports filed prior to 7/22/ 2002, no statute of limitations applies; state looks back on audit look-back.

None Yes

Filed by 12/31/16: 1/1/1996

Filed After 1/1/17: 19 Years

Yes No

Rhode Island 1-3 10 Years + Dormancy 10 Years + Dormancy 7 Years + Dormancy

No - Informal VDA Available

Typically 10 Years + Dormancy

Case by Case Basis; typically not

assessed No

Vermont 1-3 Company Inception 10 Years + Dormancy; Tolled if no or fraudulent reporting

10 Years + Dormancy Yes 10 Years + Dormancy Yes Yes Gift Certificates: Reporting is not required for certificates issued after 7/1/2006.

Note: The above listed matrix is for discussion purposes only. State unclaimed property information is subject to change. Listed material is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

@BDO_USA_Tax

BDO KNOWLEDGE Webinar Series ‒ Is California Becoming the New Delaware for Unclaimed Property Audits? (Part II)

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Recent Developments • Pennsylvania reduces dormancy periods

• Pennsylvania amended its unclaimed property law in 2014 to reduce all dormancy periods from 5 years to 3 years.

• Also enacted statute specifically requiring the escheat of Roth IRAs.

• New Jersey eliminates consumer data collection requirements for stored value cards.

• New Jersey addresses unclaimed property on sales and use tax audits • Sales and use tax audits now include a detailed “pre-audit questionnaire” for unclaimed property

compliance. • Results of the questionnaire indicating a lack of compliance may lead to unclaimed property audits

conducted either by the state or third party contract audit firms.

• New York changes its administrative policy on business to business (“B2B”) transactions • Reverses historic position to defer the period of presumed abandonment for credit balances and

accounts payable owed by one business association to another, as long as those businesses have an ongoing business relationship.

• How to handle deferred obligations? • Current experiences on audit.

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Recent Developments

• New York sends 30 Day Final Notices to Holders in Receipt of an Outreach Notice • A final notice regarding New York State's increased and focused enforcement efforts relating to

unclaimed property is being sent out to thousands of holders. • Holders who fail to comply with the final 30-day notices are likely to receive audit notices from

the state.

• Maine S.B. 320 • Date signed: 06/17/2015 (became law without Governor’s signature); date effective: 06/17/2015 • Overview: Requires U.S. Savings Bonds to be escheated three years after final maturity date

• New Hampshire S.B. 134

• Date signed: 06/12/2015; date effective: 08/11/2015 • Overview: Requires U.S. Savings Bonds with last known owner addresses of New Hampshire to be

escheated five years after final maturity.

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Recent Developments • North Carolina

• North Carolina H.B. 184 • Bill exempts gift cards issued as merchandise credits if they meet certain conditions. • Section 4.5.(a) G.S. 116B-54 reads as rewritten: • "§ 116B-54. Exclusion for forfeited reservation deposits, certain gift certificates or electronic

gift cards, prepaid calling cards, certain manufactured home buyer deposits, and certain credit balances, unclaimed lottery prizes, and certain merchandise credits.

• (a) A forfeited reservation deposit is not abandoned property. For the purposes of this section, the term "reservation deposit" means an amount of money paid to a business association to guarantee that the business association holds a specific service, such as a room accommodation at a hotel, seating at a restaurant, or an appointment with a doctor, for a specified date and place. The term "reservation deposit" does not include an application fee, a utility deposit, or a deposit made toward the purchase of real property.

• (b) A gift certificate or electronic gift card is not abandoned property when the gift certificate or electronic gift card:

• (1) Conspicuously states that the gift certificate or electronic gift card does not expire; • (2) Bears no expiration date; or • (3) States that a date of expiration printed on the gift certificate or electronic gift card is

not applicable in North Carolina.

• North Carolina NC H 27, signed by Governor August 1, 2014 This bill provides that unclaimed US savings bonds escheat to the state as directed by the treasurer, and creates an escheat savings bond trust fund.

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Recent Developments • Georgia H.B. 322

• Date signed: 05/06/2015; date effective: 07/01/2015 • Overview: Requires U.S. Savings Bonds to be escheated three years after dormancy.

• South Carolina H.B. 3852 • Date signed: 06/11/2015; date effective: 06/11/2015 • Overview: Provides for escheatment to the state of unclaimed U.S. Savings Bonds, provides for

judicial determination of escheatment, and provides for procedures for challenging escheatment.

• Tennessee S.B. 1216 • Date signed: 05/08/2015; date effective: 06/16/2015 • Overview: Requires remaining excess proceeds from tax sales proceeds to be escheated to the state

after final determination of all filed motions for redemption and excess proceeds or one year following the expiration of the redemption period for that parcel, whichever is later.

• West Virginia Supreme Court of Appeals Reverses Trial Court Decision • June 2015: The Court ruled that life insurers have no duty under the West Virginia Unclaimed

Property Act (UPA) to search the Death Master File (DMF), but that the insurers still have an obligation to report unclaimed life insurance benefits three years after the owner dies.

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Recent Developments

• Florida • Florida H.B. 887 • Date signed: 06/11/2015; date effective: 07/01/2015 • Overview: Provides for escheatment to state of unclaimed U.S. savings bonds; provides for judicial

determination of escheatment; provides procedures for challenging escheatment; provides for deposit of proceeds of escheatment; provides that person claiming a U.S. Savings Bond may file claim.

• New Proposed: Proposed amendments to update and clarify the requirements for reporting and remitting unclaimed property to the Department. Among these changes, the draft rule requires electronic reporting for holders reporting 25 or more apparent owners with stated exceptions. It also provides information that must be included in a due diligence notice to owners of property valued at $50 or more.

Legal Update

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Recent Challenges to Unclaimed Property Laws Temple-Inland, Inc. v. Cook

Facts

o Temple-Inland, Inc., a Delaware incorporated entity, was audited by Kelmar Associates on behalf of the State of Delaware beginning in 2008, and subsequently filed an administrative appeal regarding Kelmar’s “Report of Examination.”

o Temple-Inland had researchable records for AP back to 2003, and payroll records back to 2004.

o Temple-Inland acknowledged a Delaware liability of $147.30 for payroll and $0 for AP for the years where records existed.

o The State Escheator used an estimation method to extrapolate the amount of unclaimed property due to Delaware for years where records were not available, resulting in an additional assessment of $2.1M.

o Temple-Inland contested, amongst other things, the state’s methodology of estimation, citing the following examples:

o Inclusion of checks written to states with a B2B exemption

o Inclusion of checks that were voided because they were issued in error

o Inclusion of checks that were voided and reissued prior to the expiration of the dormancy period

o Inclusion of checks that were previously escheated

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Recent Challenges to Unclaimed Property Laws Temple-Inland, Inc. v. Cook

Issue

o On appeal, the decision was affirmed in part and reversed in part, and Temple-Inland filed suit in federal district court challenging the assessment and specifically Delaware’s right to estimate

o Temple-Inland alleges that its substantive due process rights were violated due to the use of estimation.

o Temple-Inland also alleges that Section 1115 of the Escheats Law violates the Ex Post Facto Clause of the U.S. Constitution by imposing a retroactive penalty

o Also makes Takings Clause and Full Faith and Credit arguments

o The court granted in part and denied in part the defendants’ motion to dismiss and denied Temple-Inland’s motion for summary judgment.

Conclusory Comments

o If Temple-Inland is successful, may have significant impact on Delaware’s ability to estimate and/or the methods used to estimate a liability for years where records do not exist.

o Temple-Inland’s challenges will proceed to trial, scheduled for 2016.

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Recent Challenges to Unclaimed Property Laws Plains All American Pipeline, L.P. v. Cook

Facts

o Plains is a limited partnership organized under the laws of Delaware.

o Delaware and Kelmar notified Plains that it was the subject of an unclaimed property audit and sent initial requests for information. Plains objected to those requests on constitutional grounds, which Delaware rejected.

Issue

o Plains filed a lawsuit seeking declaratory relief against Delaware’s practices of utilizing Kelmar to conduct unclaimed property audits.

o Plains also asserts that Delaware’s method of selecting Plains as an audit target violates Plains’ Fourteenth Amendment because Delaware chose Plains based on perceived profitability bearing no rational relationship to a legitimate governmental interest.

o Plaintiff alleges that Delaware’s audit practices (1) constitute unreasonable searches and seizures under the 4th Amendment; (2) violate Plains’ due process rights under the 14th Amendment; (3) constitute the taking of private property for public use without just compensation; and (4) violate Plains’ right to equal protection.

o Plaintiff also challenges Delaware’s right to estimate, similar to what Temple-Inland argues.

Conclusory Comments

o In addition to challenging the estimation methodology employed by Delaware, the Plains complaint is worth watching insofar as it raises new challenges related to Delaware audit selection methods.

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Recent Challenges to Unclaimed Property Laws National Freight, Inc. v. Sidamon-Eristoff

Facts

o National Freight, Inc., a New Jersey incorporated entity, is a motor carrier subject to the Interstate Commerce Commission Termination Act (“ICCA”).

o National Freight was audited by the State of New Jersey beginning in 2010, and subsequently filed suit against the New Jersey State Treasurer, unclaimed property administrator, and chief auditor in May 2015, seeking a declaratory judgment and an injunction against the enforcement of the resulting assessments.

o National Freight is challenging the assessed liability, claiming that the error rates used to calculate the “penalty” portion of the assessment includes disbursements/credits owed to states other than New Jersey, including states that exempt the liability pursuant to an exemption (e.g., B2B).

Issue

o National Freight’s arguments include the following:

o As a motor carrier, New Jersey is federally preempted from imposing its unclaimed property laws by the Interstate Commerce Commission Termination Act of 1995

o The assessment violates the Commerce Clause

o The estimate violates the New Jersey Unclaimed Property Act because the estimate was not reasonable

Conclusory Comments

o While the case addresses one specific industry, it worth watching since the decision will likely address (1) New Jersey’s authority to and methodology for imposing penalties in the form of an estimated liability and (2) provide further guidance on the extent to which federal laws preempt the application of state unclaimed property laws.

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Other Recent Litigation State of Delaware ex rel. French v. Card Compliant LLC, et. al.

Facts

Delaware Defendants are multiple retailers, incorporated in Delaware, that sell gift cards. Delaware Defendants did not keep any records of who purchased the gift cards. Without name and address information, the unredeemed gift card balances would be reportable to the Company’s state of incorporation or formation.

Delaware Defendants created contracts that identified the Card Compliant Defendants as the “holder” of these unredeemed gift cards in exchange for an annual fee. It appeared that the gift cards were issued out of the Card Compliant corporations; however, the Defendants were always the “holders” of the unused value of the cards.

Card Compliant Defendants set up shell corporations incorporated in Ohio and Florida to “hold” the value of the unredeemed gift cards, because these states do not define unclaimed property to include unredeemed gift cards, and therefore this property was no longer reportable.

Relator brought a qui tam action on behalf of Delaware against the Delaware retailers and Card Compliant, alleging that the various retailers outsourced their gift-card programs to a non-Delaware third party in order to circumvent Delaware Escheats Law.

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Other Recent Litigation • State of Delaware ex rel. French v. Card Compliant LLC, et. al.

Issue

Case removed to federal court, then remanded back to state court

Oral arguments on the Defendant’s motion to dismiss were held in June 2015. A decision is expected in late September 2015.

Conclusory Comments

If Delaware’s claims succeed, this type of outsourcing arrangement will be subject to scrutiny/challenge.

The decision could have ramifications for internal gift card arrangements.

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Other Recent Litigation JLI Invest S.A. et al. v. Cook et. al.

Facts

o Plaintiffs are two Belgian scientists who owned shares in Idenix Pharmaceuticals, Inc., a company that was established to develop a drug created by the scientists that was found to be active against the Hepatitis B virus.

o Plaintiffs allege that they were in possession of their shares the entire time and were not “lost” to the company. Their addresses, located in a foreign jurisdiction, were alleged to be known to the company and the transfer agent, Computershare, and no mail was ever returned undeliverable.

o Shares of Idenix were escheated to the State of Delaware in 2009 and promptly sold by Delaware three days later for an amount of $1,965,851.75 ($3.03/share).

o Sell order placed days after receipt.

o In 2014, Merck acquired Idenix and made a tender offer of $24.50/share, which the plaintiffs could have and would have participated in had their shares not been escheated by Delaware, for a total of $13,720,000.

o Complaint filed in Delaware Chancery Court on July 9, 2015.

Issue

o Plaintiffs allege that Delaware never attempted to locate or contact them regarding the unclaimed shares, contrary to the primary purpose of the Escheat Law.

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Other Recent Litigation JLI Invest S.A. et al. v. Cook et. al.

Issue (con’td)

o Challenges state of domicile’s right to escheat foreign-addressed property and state of domicile’s right to sell foreign-addressed shares delivered into its custody.

o In addition to the State of Delaware, lawsuit names the Secretary of Finance, State Escheator, and former Secretary of Finance and State Escheator in their individual capacities as well as their official capacities, for violation of the shareholder’s constitutional rights.

Conclusory Comments

o A decision in JLI is important to holders since it will likely mean that the court will have to answer whether:

a) a holder’s state of domicile has the right to escheat foreign-addressed property; and

b) the domicile’s state’s right to sell securities, particularly foreign-addressed shares delivered into its custody.

Questions?

Biographies

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Biography Joseph Carr, J.D.

Partner & National Unclaimed Property Practice Leader BDO USA, LLP 330 N. Wabash, 32nd Floor Chicago, IL 60611 Direct: (312) 616-3946 Cell: (773) 544-5150 jcarr@bdo.com

With 16 years of combined experience in state and local taxation, financial statement auditing, and operational auditing, Joe has worked with a broad range of the Firms’ largest clients including manufacturing, retail, distribution, financial institutions, investment companies, and business services. He specializes in state and local tax issues with an emphasis on income/franchise taxation and unclaimed property compliance and consulting.

Joe heads up the firms National Unclaimed Property practice and has had success in mitigating client escheat exposures in VDA and audit settlements before many state escheat divisions. This success is largely attributable to his deep understanding of accounting principles, transaction flow and unclaimed property law. Having evaluated financial and operational corporate risks, Joe offers clients facing escheat issues valuable accounting experience and an unique perspective in dealing with unclaimed property matters. Mr. Carr has also written various alerts and firm bulletins on unclaimed property matters, including gift card planning and strategies.

Prior to joining the Chicago office of BDO USA, LLP, Joe worked with KPMG LLP and Deloitte & Touche LLP in state and local tax and audit divisions respectively. In addition, Joe also managed the Internal Audit Division of a middle market food cooperative.

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Biography Michael Kenehan, CPA, MBA.

Senior Manager Unclaimed Property Services BDO USA, LLP 1700 Market Street, 29th Floor Philadelphia, PA 19103 Direct: (215)636-5563 Cell: (570)357-1648 Mkenehan@bdo.com

Michael has more than 11 years of combined experience in abandoned and unclaimed property (AUP) and internal audit related matters. He possesses vast experience in handling large unclaimed property audit engagements for the nation’s largest contract AUP firm in a variety of industries including healthcare, retail, manufacturing, oil and gas, entertainment, food and beverage, automobile, and hospitality. Mike leverages his extensive knowledge of the audit process, property types, and the rules and regulations associated with AUP to assist clients in mitigating exposure and proactively addressing its escheat issues.

Michael is based out of the Philadelphia office and specializes in audit defense, escheat planning, general consulting, and voluntary disclosure agreements (VDA), etc. He has established professional relationships with many state unclaimed property administrators and offers clients with a unique perspective in dealing with all unclaimed property related matters.

Prior to joining BDO, Michael worked with Kelmar Associates, LLC as a Senior Audit Manager in charge of unclaimed property audits contracted on behalf of various states. Michael also worked as a Team Leader in internal audit for ABC Supply Company.

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BIOGRAPHY Jamie Hedstrom, CPA, MST

With over ten years of experience in state and local taxation, Jamie has worked with a broad range of the Firms’ largest clients including manufacturing, retail, distribution, and healthcare. Her areas of specialization include sales and use tax consulting and audit defense and unclaimed property compliance and consulting. Jamie has also been involved in proactive planning for clients in an effort to control their state and local tax costs, and manages voluntary disclosures, dispute resolutions, and other compliance based issues. As the firm’s Northeast Unclaimed Property Practice Leader, Jamie has established professional relationships with many of the state unclaimed property administrators in handling client matters, and has successfully negotiated voluntary disclosure agreements on behalf of clients and provided audit representation services. In addition, Jamie has significant escheat planning experience. Jamie has also written various alerts and firm bulletins on unclaimed property matters, and has presented on unclaimed property matters at both internal and third party-sponsored events.

Senior Manager, Northeast Unclaimed Property Practice Leader BDO USA, LLP 100 Park Avenue New York, NY 10017 Direct: (212) 885-7481 Cell: (914) 882-2553 Jhedstrom@bdo.com

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BIOGRAPHY Elizabeth Foley

Elizabeth has 8 years of experience working on abandoned and unclaimed property (AUP) matters and has extensive knowledge of AUP rules and regulations. Her experience also includes having worked in a consulting role assisting clients in all areas of AUP needs. Additionally, Elizabeth has managed unclaimed property examinations for the country’s lead contract AUP auditing firm.

As BDO’s Boston and Mid-Atlantic Regional Unclaimed Property Practice Leader, Elizabeth helps clients with all of their unclaimed property needs, specializing in audit defense and voluntary disclosure agreement (VDA) assistance. She also assists clients with unclaimed property risk assessments, general consulting and the development of policies and procedures. Elizabeth works with clients across a variety of industries, including energy and utility, oil and gas, food and beverage, manufacturing, retail, technology, and insurance.

Prior to joining BDO, Elizabeth worked with Ryan, LLC in their unclaimed property consulting practice and Kelmar Associates, LLC as a manager of unclaimed property audits contracted on behalf of numerous states.

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 58 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,328 offices in 152 countries. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com. Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs. © 2015 BDO USA, LLP. All rights reserved.