Indiana just launched a new unclaimed property compliance enforcement effort that is bringing unwelcome news to some holders. In early April, Indiana sent out formal notices to holders indicating that fines could apply for failure to timely report and remit unclaimed property. In some cases, not only did holders receive the warning notice, but also an actual assessment and invoice reflecting the threatened fines. The letters accompanying these assessments indicated that the holder has 60 days to pay the assessment, including the fine, or demonstrate to the Indiana unclaimed property authorities that the assessment was incorrect. Adding salt to the wound, the letters indicated that failure to comply may subject the company to an audit.
Idaho, on the other hand, recently passed a law that eases the compliance burden associated with reporting unclaimed corporate securities and related distributions. HB 174 (effective July 1, 2011). Idaho’s new law makes two major changes to corporate securities reporting: (1) a requirement that the owner is actually “lost” before the dormancy period commences, and (2) clarification of the requirements for reporting unclaimed dividends paid pursuant to dividend reinvestment program accounts (DRIP accounts).
Previously, Idaho had a confusing dormancy rule for corporate securities. While an owner’s mere inactivity—such as failing to cash distribution checks or failing to otherwise communicate with the holder during the statutory five-year dormancy period—triggered the unclaimed property reporting responsibility, the five-year dormancy period only applied if the holder paid out at least five dividends or other distributions within that time period. Otherwise, the dormancy period continued until five distributions were issued, regardless of the total time elapsed. Now, the dormancy period requires inactivity by the owner for a period of five years, regardless of whether distributions were made, and that the association (holder) does not know the location of the owner during that five-year period. The new Idaho law provides that mail to the owner returned by the post office as undeliverable suffices as evidence that the holder does not know the owner’s location.
HB 174 also adds the requirement that the owner is actually lost during a five-year period for purposes of DRIP accounts. Automatic reinvestment dividends are not escheatable unless the owner has not communicated with the association during a five-year period, or five years have elapsed since the association has known the location of the owner, as evidenced by the return of official shareholder notifications or communications by the postal service as undeliverable. Interestingly, the “return of official notifications or communications” begins at the earlier of: the return of the second of those notifications or communications, or the time the holder discontinues mailings to the shareholder.