Category: federal property

Unclaimed Federal Tax Refunds & What Happens When Sovereigns Collide

 According to The Asbury Park Press, the federal government is holding more than $917 million in unclaimed tax refunds from 2009 and the deadline for requesting a refund — April 15 — is fast approaching.  According to the article the number of taxpayers affected is significant:  more than 30,000 in New Jersey, over 86,000 people in Texas, and more than 100,000 in California. 

This begs the question:  what happens to these tax refunds if they remain unclaimed, do they get turned over to the states as unclaimed property?  Consider the following:

Unclaimed property practitioners are familiar with the seemingly continued and unrelenting expansion of state unclaimed property laws.  Where, historically, those laws were used to provided rules for the disposition of the estates of those who died without heirs, they now touch upon nearly every party of modern economic life:  bank accounts, brokerage accounts, checks, gift cards, benefits, rebates, insurance proceeds . . . . the list is nearly endless.  However, as state governments become increasingly reliant upon using unclaimed funds to balance state budgets and provide a source for state revenue, pressure increases on state legislatures and/or unclaimed property administrators to expand the laws even further, or to audit even more aggressively, to continue to be able to feed the beast.  As states recognize that they can only squeeze so much revenue from corporations and financial institutions, they will start to look elsewhere.  One such place that they may look is to federal government programs.  

After all (the argument would go), one of the rationales for state unclaimed property laws is that the state “steps into the shoes” of the rightful owner and takes custody of the property in that owner’s name.  See Great Iowa Treasure Hunt FAQs (explaining that “The courts have long maintained the states’ rights are derivative of the missing owner. In other words, the state stands in the shoes of the missing owner.”)  Under this theory, there would seem to be no reason why property held by the federal government is any different.

The “steps into the shoes” theory, however, is not the only policy supporting unclaimed property laws.  Another is the “common benefit” theory, which generally provides that when property is abandoned or unclaimed, the property is better used for the benefit of all citizens (i.e., by escheating the money to the state) rather than having the holder (who, in most cases, has no entitlement to the funds) receive a windfall because of the owner’s failure to take the property.  Under this theory, the property arguably should remain with the federal government, where it can be used for the common benefit of all citizens.  Similarly (the argument would go) there is no reason why the state should be deemed a better custodian of unclaimed funds than the federal government.  Indeed, the federal government has its own site providing links to searchable databases of unclaimed funds relating to government programs.

So, what happens when sovereigns collide?  A relatively recent case out of New Jersey suggests one possible answer.  Last year, the states of New Jersey, Montana, Oklahoma, Missouri, Pennsylvania, Kentucky and North Carolina filed an action in federal court seeking to require the federal treasury to turn over unclaimed savings bonds that the states alleged had become abandoned pursuant to their state unclaimed property laws.  The amounts at issue were significant.  The states sought turnover of some $1.6 billion in matured bonds and some estimate that the amount of matured but unredeemed bonds held by the Treasury Department is about $16 billion. 

Ultimately, the federal district court dismissed the case, raising the doctrines of federal preemption (i.e., that federal law is superior to, and cannot be trumped by, a conflicting state law) and intergovernmental immunity (i.e., that one government cannot threaten civil or criminal penalties to another government for acts carried out in an official capacity).  This decision was affirmed by the United States Court of Appeals  in Philadelphia, which held that “federal statutes and regulations pertaining to United States savings bonds preempt the States’ unclaimed property acts insofar as the State seek to apply their acts to take custody of the proceeds of the matured but unredeemed savings bonds.”  The Court also agreed with the district court that the states’ claim was barred by the doctrine of intergovermental immunity, reasoning that allowing application of state unclaimed property laws to the federal government “would result in a direct regulation of the Federal Government [by a state] in contravention of the Supremacy Clause.”

Apparently reluctant to give up on this pot of funds, the objecting states filed a Petition for Certiorari with the Supreme Court of the United States, asking the high court to review and reverse the appellate court’s decision.  That petition is currently under review.

Unless and until the Supreme Court reverses the decision of the Court of Appeals in the savings bond case, it is unlikely that the states will see be able to take custody of property held by the federal government under state unclaimed property laws.  However, with both the state and federal governments scrambling to raise revenue, cut expenses, and balance budgets, these inter-government fights over other people’s money are sure to continue.

Looking for Unclaimed Pension Funds? Try the PBGC.

Although the rules and regulations governing the reporting, custody and claiming of abandoned or unclaimed property are generally a matter of state law, there are a few areas that involve the federal government.  Examples are unclaimed savings bonds and deposits held by failed banks.  Another example is unclaimed pension benefits. 

Prior to the enactment of the 1974 Employee Retirement Income Security Act (ERISA), many companies went out of business and/or ceased operations without sufficient funds to pay accrued pension benefits for retired and active workers.  One of the most famous examples was the so-called “Studebaker Incident” where the closing of that automaker’s plant in Indiana left thousands of employees without pensions.  Although the enactment of ERISA did not require any company to create a benefit plan, it did require companies sponsoring benefit plans to maintain certain funding levels and required measures to safeguard pension funds.  ERISA also created the Pension Benefit Guaranty Corporation (PBGC), a government entity funded by insurance premiums and the assets of failed pension plans, which pays benefits to more than 600,000 retirees of more than 3,800 terminated or failed pension plans. 

What does this have to do with unclaimed property?  It is perhaps no surprise that some pension benefits (especially those relating to terminated or failed plans) go unclaimed by the rightful owners and/or their heirs.  Accordingly, the PBGC maintains a searchable database of missing retirees for whom the PBGC holds assets.  Notably, the assets held by the PBGC relate not only to long forgotten companies but also currently operating companies that may have suffered a past bankruptcy or other adverse financial situation.  If you or someone you know is owed a pension – especially from a company that is now out of business or previously declared bankruptcy – it may be worth checking.

Unclaimed Savings Bonds

During this time of year, there are many graduation celebrations of all levels — from preschool to college.  A popular gift for many of those graduates are U.S. Savings Bonds.  Under the most popular savings bond program (series EE), the bond is purchased for 50% of its face value, and matures 20 years from issuance.  Though the bond matures after 20 years, they continue to earn interest for an additional ten years (or until cashed).

Of course, with a 20 year period before the bond matures, many graduates will put them in a drawer or safe deposit box and lose track of them completely.  These items held by the federal government, however, are not escheated to the states as unclaimed property.  Instead, the Treasury Department has a special webpage to help bondholders find information about lost or matured bonds.  Please check it out.

Did You Know? Tax Day (Except that tomorrow is a holiday in the District of Columbia, but is observed today, so tax day is now on Monday) Edition

It’s time again for Did You Know? On DYK days here at Escheatable, we try provide you with interesting information regarding the unclaimed property laws to amaze your friends and frighten your enemies.

Today is Tax Day (although its really on Monday).  In any event, thousands of individuals are rushing to file their taxes and make payments (if necessary) to Uncle Sam.  Of course, as any unclaimed property professional knows, when so many payments are coming in at once, some are likely to get missed.  Uncle Sam, like other large organizations, is not immune.  In fact, according to a search done on Missing Money, the IRS or Internal Revenue Service has over 200 items of unclaimed property that are being held by the states.

The FDIC Unclaimed Funds List – A Resource for Depositors of Failed Banks

Last week, the Federal Deposit Insurance Corporation (FDIC) announced that Legacy Bank of Milwaukee, Wisconsin and First National Bank of Davis, Davis, Oklahoma, were being closed by the Wisconsin Department of Banking and Comptroller of the Currency, respectively.  In both cases, the FDIC was appointed as the receiver of the failed banks.  That brings the total number of failed banks in 2011 to 25.  In these cases, the FDIC – created by the Banking Act of 1933 – is responsible for the payment of deposits and the liquidation or sale of the remaining bank assets.  Notably, the FDIC is not funded directly by taxpayer dollars, it is generally funded by premiums paid by its member banks for deposit insurance.

For those customers who do not withdraw their funds from a failed institution (or don’t have their account assumed by a successor bank) the FDIC also maintains an unclaimed funds website where depositors can search for their abandoned accounts.  Eventually, the FDIC turns the funds over to the appropriate state as unclaimed property, but with a twist.  As a matter of federal law, if the funds are not claimed “within 10 years of the date of delivery [to the state], the deposit shall be immediately refunded to the [FDIC] and become its property.  All rights of the depositor against the appropriate State with respect to such deposit shall be barred as of the date of the refund to the FDIC.”  12 U.S.C. 1822.

$33 Million Available for Veterans and Their Families

Beginning in 1917 during World War I, the U.S. government has provided life insurance to soldiers, sailors and marines.  Originally intended to provide insurance against the loss of ships and cargo prior to America’s involvement in World War I, the War Risk Insurance Act was thereafter amended to allow the federal government, through the Department of Veterans’ Affairs, to offer life insurance to members of the armed services.

According to the VA insurance website, over 93% of those eligible during WWI took the coverage (up to $10,000) and these programs were continued through each succeeding war and major conflict.  As with other types of insurance, however, a substantial amount of the policies remain unclaimed.  According to an article on ABCnews.com, at least $33 million in unclaimed insurance proceeds remain with the VA, most of which dates back to World War II.  Veterans, or their families, can check  if they are eligible through the VA website.