Michigan Department of Treasury, Unclaimed Property Voluntary Disclosure Program

We’ve recently received inquiries from some of our business clients concerning a notice regarding unclaimed property that they have received from the Michigan Department of Treasury. Interestingly enough, the State Bar of Michigan has recently communicated with all of the lawyers in the State to alert us to this notice, concerns it raises, and efforts of the State Bar to deal with it. Here is the situation.

Most states, including Michigan, have a set of laws on the books to deal with unclaimed property. The Michigan, Uniform Unclaimed Property Act is known as Act 29, of the Public Acts of 1995, and can be found at Michigan Compiled Laws Section 567.221, and following (MCL 567.221; http://legislature.mi.gov/doc.aspx?mcl-Act-29-of-1995; the “Act.”) The purpose and intent of unclaimed property laws are to provide for the disposition of unclaimed property held, primarily, by businesses. For example, utility companies, banks, insurance companies and retailers, may be holding deposits, money or other items of tangible value that belong to customers, but have gone unclaimed for extended periods of time. Without unclaimed property laws, the ownership of such unclaimed property would remain in limbo, indefinitely. Unclaimed property laws, therefore, provide a mechanism for businesses to report, and turn over such unclaimed property to the State. Tangible items are sold at auction with the proceeds, and any cash that has been turned over, ultimately deposited into one or more State funds or programs.

The concerns caused by the recent Treasury Department notice stem from the fact that it seems to set forth requirements that are not part of the Act. Specifically, under the Act, businesses that are holding, or think that they are holding property that belongs to customers but which has gone unclaimed for a period of time prescribed in the Act (generally, 3 years), must file a report with the Treasury Department and turn the property over to the State. In so doing they are absolved of further liability or responsibility to the customer to preserve and safeguard the property. Further, under the Act, if the Treasury Department believes that a business may be holding unclaimed property but has failed to make the required filing with the State, the Treasury Department may examine the books and records of the business and assess fines and penalties if it is found that a report should have been made.

However, the Michigan Unclaimed Property Voluntary Disclosure Agreement (Michigan Department of Treasury form 4869), along with the cover letter and instructions that are currently being provided with the notice, establish a scenario whereby businesses that are not even holding unclaimed property may unwittingly, contractually obligate themselves to provide annual compliance notices to the Treasury Department. In other words, although the Act does not mandate that businesses affirmatively report annually that they are not holding unclaimed property, filing of the form will contractually obligate businesses to file annual reports anyway. Further, by filing the form, businesses are agreeing that Treasury Department audits of their records may go back ten years. The State Bar has taken the position that any holder of unclaimed property that submits the form will thereby create remedies and avenues for compliance that the Treasury Department does not currently have under the Act.

The concerns of the State Bar on this issue were communicated to the Treasury Department by letter dated January 3, 2012. Members of the Bar were alerted to this situation by way of an email dated January 12, 2012. That email advised that as of that date, no response had been received from the State.

The notice specifies a response deadline of January 31, 2012. While it is never a good idea to ignore notices from the State, and rarely a good idea to simply comply with a notice that you may not understanding, this one has the potential to cause some problems moving forward. If you’ve received such a notice and are not sure how you should respond, the attorneys at Wright Beamer are available to help.

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