Unclaimed Property and Cryptocurrency:  State Reporting Considerations 

In my previous two unclaimed property and cryptocurrency blogs posts titled, “Regulation and the Impact on Digital Assets” and “Due Diligence Requirements and Compliance,” we explored the impact of unclaimed property regulations in the virtual currency world and the what, why, when and how of due diligence compliance.    

Now that you have completed your due diligence and you still have owners who have not come forward to claim their virtual assets or initiated activity on their accounts, what comes next?   

The National Association of Unclaimed Property Administrators (NAUPA) puts it very simply. If no contact with the owner has been made, then the organization must prepare and submit an unclaimed property report to the state(s). This report must follow a state-by-state specified set of standards and specifications. Piece of cake, right? Wait…someone mentioned cake? 

The recipe for a successful report starts with all the essential ingredients. Flour, sugar, butter…oh goodness, sorry, wrong recipe. Before we get into the ingredients of the report, it is important to call out the fact that not every state has legislation in place governing virtual assets. We can break this down into four major categories and the impact of each.   

1. The simplest category are those states that have not enacted legislation specific to virtual currency and have instructed holders NOT to report their virtual currency at this time. Keep in mind, even though you do not need to report, you should implement practices to prepare for future reporting. This includes written policies and procedures, proactive customer outreach and strict monitoring of the legislative progress of each state.  

2. The category causing significant confusion and frustration are those states that have not enacted legislation specific to virtual currency but have instructed holders TO report under a miscellaneous catch-all provision. These cases should be carefully evaluated, and you should work with an unclaimed property advocate to help you navigate the murky waters of compliance. In these cases, states are instructing the liquidation of the asset and reporting under an MS17 property type. Your unclaimed property advocate can help you navigate the compliance process to include the liability exposure of the holder to claims by the apparent owners of this property type for subsequent gains in value, given the volatility inherent in this property type’s value. In addition to reporting considerations, you should have documented policies and procedures, as well as proactive customer outreach and ongoing monitoring of the legislative progress of each state.   

3. The third category are those states that have enacted legislation specific to virtual currency and expect holders TO report per the state statute by liquidating the asset and reporting as an MS17 property type. These cases should be carefully evaluated, and you should work with an unclaimed property advocate to help you navigate the compliance process to include the liability exposure of the holder to claims by the apparent owners of this property type for subsequent gains in value, given the volatility inherent in this property type’s value. While there are still gray areas around the logistics of reporting in this category, you should prepare for compliance and also have your policies and procedures in place along with a proactive customer outreach program.   

4. The final category are those states that have enacted legislation specific to virtual currency and expect holders TO report in the native currency per the state statute using Virtual Currency specific property codes. Be sure the partner you are working with can accommodate those codes in the reporting process and it is vitally important to understand each state’s reporting expectation with this new property type. You should also have your policies and procedures in place along with a proactive customer outreach program. 

Once you determine that you have a reporting obligation, the remaining ingredients of reporting are documented and generally straightforward. There are certain data characteristics that you will need to prepare for inclusion in the report, including but not limited to the following: 

• Owner name
• Owner’s last known address
• Property code
• Property value
• Owner ID
• Last activity date (date of last owner-initiated activity) 

You will need to pull together the necessary fields and lay out a plan of how to identify, capture and organize those data points for accurate reporting. The icing is working with an expert partner, like Sovos, that can help you build the perfect recipe for success.   

Now… back to that cake…