Unclaimed Property Breaking Developments: Michigan Continues Its Holder-Friendly Trend of Legislation with Senate Bill 538

Nov 05, 2015, 17:04 ET from Ryan

DALLAS, Nov. 5, 2015 /PRNewswire/ -- Michigan is continuing its recent trend of holder-friendly legislation in the pending bill, Senate Bill 538 ("S.B. 538"), which was introduced on October 1, 2015. The legislation passed unanimously in the Senate on October 28, 2015, and has now moved to the House. The proposed legislation introduces several novel items, including a streamlined audit process, which, if enacted, would provide significant changes to the Michigan Uniform Unclaimed Property Act ("Act"). Highlights of the bill are as follows. 

  • De Minimis Exemption for Property $50 or Less - The bill provides, subject to two exceptions, for an expansive de minimis exemption for all property valued at $50 or less. The two exceptions delineated in the bill are that the foregoing exemption does not apply to (i) equity-related property such as stock or other intangible ownership interest in a business association, or (ii) dividends. Thus, the exemption in the proposed legislation applies to general ledger property, such as accounts payable, accounts receivable, and payroll, but does not apply to stock or dividends property.
  • Streamlined Audit Process - General - The bill provides that "eligible holders" being examined by the administrator may elect to follow a new, streamlined audit process. To elect the streamlined audit process, the bill states that the eligible holder must execute a nondisclosure agreement acceptable to the administrator within 30 days from the receipt of the audit notice. The key goal of this new audit process is to complete the audit within 18 months from the receipt of the audit notice, within a timeframe jointly developed by the eligible holder and administrator, according to rules and regulations to be promulgated.
  • Eligible Holder Defined - An "eligible holder" is defined for this purpose to mean a holder that meets one or more of the following: (i) a corporation whose parent corporation is incorporated or does business in Michigan, (ii) a corporation that has a subsidiary incorporated or does business in Michigan, or (iii) a corporation that is not incorporated in Michigan but is wholly owned by a corporation that is incorporated or does business in Michigan.
  • Streamlined Audit Process - Details - The bill provides that this new audit process is to be conducted in accordance with the following standards. First, any examination performed by the administrator, or his or her duly authorized agent, must be performed in accordance with "...generally accepted auditing standards to the extent applicable to unclaimed property examinations." Second, once an eligible holder has been audited, and an audit report has been prepared, such holder must be provided a complete copy in printed or electronic format of the audit report, which shall identify in detail the work performed, the property types reviewed, any estimation techniques performed, calculations showing the potential amount of property due, and a statement of findings, as well as all other correspondence and documentation that formed a basis for the findings. Third, not later than six months after the effective date of the act becoming law, the administrator must electronically file a request for rule-making with the Office of Regulatory Reinvention pursuant to the Administrative Procedures Act to initiate rules on auditing standards. Interestingly, another part of the bill states that for an eligible holder that has elected a streamlined audit, examinations shall not include checks voided within 180 days from the date of issuance of the check.
  • Significance of Streamlined Audit - Holders eligible for the streamlined audit process must act quickly once a Michigan audit notice is received. If they fail to affirmatively elect to be covered by the streamlined audit process, Michigan could assign the audit to a third-party contingent fee auditor to manage the audit, thus resulting in a longer, and presumably more expensive, audit.
  • Statute of Limitations - The bill provides that for eligible holders that elect to participate in the streamlined audit process, an action or proceeding shall not be commenced by the administrator with respect to "...any duty of a holder under this act more than 4 years after the duty arose." For holders not covered by the new streamlined audit process, an action or proceeding "...shall not be commenced by the administrator with respect to any duty of a holder under this act more than 10 years, or, for the holder of records of transactions between 2 or more associations, as defined under section 37(a)(2), more than 5 years after the duty arose."
  • Effective Date - The bill provides that the legislation is retroactive and applies to audits in progress as of August 15, 2015, but does not retroactively apply to contested determinations in litigation before the date of enactment of S.B. 538.

This pending legislation is ancillary to other holder-friendly legislation Michigan has passed in recent years. For example, in 2012 Michigan House Bill 4563 ("H.B. 4563") added a Business-to-Business exemption to its law, impacting reporting for 2013. In addition, a new, holder-friendly appeals process was enacted in December 2014, with an effective date of March 31, 2015. In contrast, many states have not codified an appeals process applicable to unclaimed property. Also, Michigan added new auditing standards with the enactment of House Bill 4289 ("H.B. 4289") in October 2013. H.B. 4289 included several key holder protections; specifically, auditors are required to use generally accepted auditing standards for unclaimed property examinations. It also directed the administrator to initiate rules on auditing standards. The bill provided extrapolation would not occur if a holder has "substantially complete records." 

In summary, S.B. 538, if enacted into law in substantially its current format, provides for several key holder-friendly provisions. Thus, the provisions of a streamlined audit process, shortened audit look-back periods, expansive de minimis exemption, and express void provisions are all beneficial to the holder community.  Holders seeking additional clarification on how these matters could impact their specific factual situations may contact their designated Abandoned and Unclaimed Property (AUP) representative or one of the Ryan contacts below.

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