Voluntary Disclosures – Grabbing the Tiger by the Tail Isreal J. Miller Gray Reed ‐ State and Local Tax Practice Group 2019 CE Symposium – October 24, 2019
Isreal J. Miller
Gray Reed • Counsel, Tax Department Education • B.A., University of Texas at Austin • M.S., Personal Financial Planning, Texas Tech University • J.D., Texas Tech University School of Law • LL.M., Taxation, Southern Methodist University Dedman School of Law Experience • Served for 5 years as an attorney in the Administrative Hearings Section of the Texas Comptroller of Public Accounts Gray Reed
• Over 140 attorneys • Full‐service, commercial law firm • Offices in Dallas, Houston & Waco • Opened in 1985 • Our tax section includes: • 3 attorneys who are Board Certified in Tax Law by the Texas Board of Legal Specialization • 4 CPAs It is better to grab a tiger by tail when it is sleeping…
Voluntary Disclosure Agreements (96‐576)
Policy The Texas Comptroller of Public Accounts is committed to promoting taxpayer compliance. In an effort to accomplish this objective, a Voluntary Disclosure Agreement (VDA) is available to taxpayers who want to comply with our tax laws. Standard written agreements will be made available for all taxes administered by our agency to which we can enter into such agreements. In our commitment to fairness in the administration of our taxes, we adhere to the following general guidelines: • Liabilities due to failure to collect taxes and/or file the applicable reports will be limited to reports due four years from the initial taxpayer contact date. • All taxes that were actually collected by the seller need to be remitted (i.e., there is no four‐year limitation on tax collected not remitted). • Statutory penalties will be waived. • Interest will be waived on taxes voluntarily disclosed and paid that were not collected. • Agreements will be offered to taxpayers who have not been contacted regarding an audit or investigation, either verbally or in writing. Voluntary Disclosure Agreements (96‐576)
Process Initial Taxpayer Contact A company representative initiates the process on behalf of their anonymous client by contacting the Business Activity Research Team (BART) in writing at: Texas Comptroller of Public Accounts Business Activity Research Team PO Box 13003 Austin, Texas 78711‐3003 (800) 688‐6829 fax: (512) 305‐9918 Voluntary Disclosure Agreements (96‐576)
Process The following information must be provided: • The type of entity (i.e., corporation, partnership, etc.) • A brief description of the company’s business including its specific activities in Texas. • Date the company began business and date the company began business activities in Texas. • Disclosure of the tax type (i.e., sales, franchise, etc.) for which an Agreement or Agreements is/are requested and specify any taxes that the corporation is already set up for in Texas. • Whether the company has been contacted by the Texas Comptroller of Public Accounts. • Whether the company has collected, but not remitted, any Texas tax. • An estimate of the amount of taxes due. • Any additional information or extenuating circumstances to support the request. Voluntary Disclosure Agreements (96‐576)
General Information • The Comptroller of Public Accounts reserves the right to deny the waiver of penalty and/or interest or to void the agreement if a taxpayer does not adhere to our program policies and procedures. • Disclosure periods remain open to future audit. • Any potential problems regarding full payment of the disclosed taxes should be included in the “initial taxpayer contact” letter, along with any request for payment agreement. • These policies and procedures may be changed at any time by the Comptroller. • As a result of House Bill 1840 of the 77th Legislative Session, the Comptroller may waive penalty and interest imposed on certain delinquent unclaimed property. Taxpayers who meet the appropriate criteria can now enter into a VDA with our agency.
Multistate taxpayers who wish to approach a number of states simultaneously may wish to use the services of the National Nexus Program of the Multistate Tax Commission. Additional Required Documentation
• Limited Power of Attorney (Comptroller Form 01‐137)
• Texas Nexus Questionnaire (Comptroller Form AP‐114)
• Most recent 4 years of franchise tax reports
• Most recent 4 years of sales and use tax returns (BART may request an Excel spreadsheet in lieu of the actual returns)
• Most recent 4 federal income tax returns
Foreign or Out‐of‐State Entities
Determining Whether to Register Texas statutes do not define “transacting business.” Helpful resources to determine whether an entity’s activities in Texas require registration include: • BOC § 9.251, which lists activities that are not considered transacting business; • Case law from Texas and other U.S. jurisdictions regarding foreign qualification; • Texas Attorney General Opinions; and • Private attorneys familiar with corporate law. Foreign or Out‐of‐State Entities
Another helpful resource may be the comptroller’s Texas Nexus Questionnaire (PDF), used by the comptroller to determine if a foreign entity is “doing business” in Texas for tax purposes. • The threshold level of activity required for a tax nexus is generally lower than the threshold level of activity that requires registration with the secretary of state. • Therefore, if the Texas Nexus Questionnaire results in a determination of “no nexus,” the entity is probably not transacting business in Texas either. • On the other hand, if the Texas Nexus Questionnaire results in a determination of “nexus,” the entity should consider registration. • Remember that, for registration with the secretary of state, the Texas Nexus Questionnaire can be a useful tool, but does not give a definitive answer. Don’t forget!
• Don’t forget that even if you determine that your entity is not transacting business in Texas under the BOC, you may need to register under other law, such as the Insurance or Finance Codes.
• No member of the secretary of state staff can determine whether an entity is transacting business in Texas or needs to file an application for registration. Determining whether to register is a business decision that may have tax consequences, raise legal issues, or impact licensing from another agency or state board. Penalties for Not Registering
Failure to register can result in penalties, including: • Inability to maintain an action, suit, or proceeding in a Texas court until registration; • Injunction from transacting business in Texas; • Civil penalty equal to all fees and taxes that would have been imposed if the entity had registered when first required; and • Late filing fees owed to the secretary of state by an entity registering more than 90 days after first transacting business in Texas. How Do I Calculate My Late Filing Fees?
Late filing fees are determined by multiplying the number of whole or partial calendar years that have passed since the date the entity initially transacted business in Texas times the registration fee. • For nonprofit corporations and cooperative associations, the registration fee is $25. • For all other entities, the registration fee is $750. • Example: A for‐profit corporation that has been transacting business in Texas since June 1, 2007 would owe $3,000 in late filing fees if registering on December 1, 2010. The total fees due with the application for registration would therefore be $3,750.
(The following entity types are not charged late fees for years prior to 2006: professional corporations, professional associations, business trusts, real estate investment trusts, and other foreign entities not required to register under prior law.) Limitation of Late Fees
If your entity will be assessed more than five years of late penalties, and you meet certain criteria, you may request that the secretary of state limit the fees you owe. The secretary of state will cap the late fees at five years for an entity that (1) submits evidence of an active right to transact business with the comptroller’s office; and (2) certifies to the truth of the following statements: • The entity has satisfied all of its franchise, sales, and other tax obligations with the Texas Comptroller of Public Accounts. Attach a screen print from the comptroller’s office showing the entity has a status of “active right to transact business”. • The entity does not owe any other taxes, fees, or assessments that are administered by any other Texas state agency. • The entity has not received a letter from the Office of the Secretary of State regarding the need to submit an application for registration, or if it has received such a letter, it has responded to the secretary of state within 45 days.
The general policy of the secretary of state is that we do not waive late fees for foreign entities, aside from the five year fee cap, if applicable. If an entity believes it has unique circumstances and wishes to appeal the assessment of late fees, the appeal shall be in writing and may be sent by email to [email protected], fax to 512‐475‐2781 or mail to P.O. Box 13697, Austin, TX 78711‐3697, Attn: Corporations Attorneys. Request to Limit Late Filing Fees
1. Entity’s legal name: 2. Entity’s jurisdiction of formation: 3. Batch number of pending Application for Registration, if known: 4. The entity requests the Texas Secretary of State to limit collection of late filing fees under Tex. Bus. Orgs. Code § 9.054 to 5 years of late filing fees, which equals $3,750 for a for‐profit entity and $125 for a nonprofit corporation or a cooperative association. The entity understands that these late filing fees are in addition to the standard filing fees for an Application for Registration. The total fees are $4,500 for for‐profit entities and $150 for nonprofit corporations and cooperative associations. 5. The undersigned certifies that the following statements are true:
The entity has satisfied all of its franchise, sales, and other tax obligations with the Texas Comptroller of Public Accounts. A true and correct Certificate of Account Status is attached showing that the entity is in good standing with the Texas Comptroller of Public Accounts. The entity does not owe any other taxes, fees, or assessments that are administered by any other Texas state agency.
The undersigned further certifies that it has not received a letter from the Office of the Secretary of State regarding this filing, or if it has received such a letter, it has responded to the Secretary of State within forty‐five (45) days of the receipt thereof.
______Submitter’s Signature ______Printed Name ______Title ______Date
IMPORTANT: Attach a Franchise Tax Account Status, which you can print from the Comptroller’s website: https://mycpa.cpa.state.tx.us/coa/search.do.
IMPORTANT: After registering with the Secretary of State, the entity may need to work with the Comptroller to consolidate accounts, to insure that the entity only has a single account with the Comptroller. The Comptroller can be reached at (800) 252‐1386 or [email protected].
Bloomberg Law Daily Tax Report®: JPMorgan Case a Threat to Banks, Retailers with Unclaimed Assets (10/3/2019)
“Unclaimed property is rapidly assuming a new role as a state revenue generator. States are taking aggressive measures to capture unclaimed property by legislating shorter dormancy periods, engaging contingent auditors as bounty hunters to examine reporting and noncompliant holders of unclaimed property, and offering amnesty programs,” the Chicago‐based accounting and tax compliance firm Baker Tilly Virchow Kruase LLP said in a recent research report.
While the total amount of unclaimed property sitting on holders’ balance sheets is unclear, NAUPA [the National Association of Unclaimed Property Administrators] reported that states collected $7.76 billion in unclaimed property in fiscal year 2015. Out of that, $3.23 billion was returned to the owners, leaving more that $4.5 billion for states’ coffers. New York ex. rel. Raw Data Analytics LLC v. JPMorgan Chase & Co., N.Y. Sup. Ct., No. 100271/2015, 8/30/19.
The unclaimed property dispute relates to a whistleblower action originally filed in 2015 by Raw Data Analytics LLC. Raw Data sued JPMorgan Chase on behalf of the New York attorney general under the state’s False Claims Acts. The complaint said JPMorgan illegally waited years to return abandoned property to the state, made false statements about its obligations, and then failed to make required interest payments to the state at a rate of 10 percent annually. The whistleblower’s lead attorney had called the financial giant’s scheme an illegal “multi‐million dollar interest‐free loan.” Texas Property Code § 74.706: Penalty
Sec. 74.706. PENALTY.
(a) A penalty equal to five percent of the value of the property due shall be imposed on a holder who fails to pay or deliver property within the time prescribed by this chapter. If a holder fails to pay or deliver property before the 31st day after the date the property is due, an additional penalty equal to five percent of the value of the property due shall be imposed.
(b) For purposes of Subsection (a), "holder" does not include a local governmental entity or an officer or employee of a local governmental entity who is performing the officer’s or employee’s official duties for the local governmental entity. Texas Property Code § 74.705: Interest
Sec. 74.705. INTEREST. A holder who fails to pay or deliver property within the time prescribed by this chapter shall pay to the comptroller interest, at an annual rate of 10 percent, on the property from the date the property should have been paid or delivered until the date the property is actually paid or delivered. (b) to (e) Deleted by Acts 1997, 75th Leg., ch. 1037, Sec. 33, eff. Sept. 1, 1997. (f) A person is exempt from payment of interest under Subsection (a) if the person’s action or omission is in connection with the person’s official duties as an officer or employee of a political subdivision of this state. (g) In this section, “person” does not include a local governmental entity or an officer or employee of a local governmental entity who is performing the officer’s or employee’s official duties for the local governmental entity. Texas Property Code § 74.707: Waiver or Abatement of Penalty or Interest
Sec. 74.707. WAIVER OR ABATEMENT OF PENALTY OR INTEREST. (a) The comptroller may waive penalty or interest imposed on delinquent property if the comptroller determines that the holder has made a good faith effort to comply with Chapters 72‐75. (b) The comptroller may provide for periods during which a holder of delinquent property may report and remit the unclaimed property without paying a penalty or interest. (c) The comptroller may waive penalty and interest imposed on delinquent property if the holder delivering the property was required to deliver the property on or before November 1, 1997. Voluntary Disclosure Agreements (VDAs)
The Texas Comptroller of Public Accounts is committed to promoting holder compliance. A Voluntary Disclosure Agreement (VDA) is available to holders who wish to comply with Texas law.
Chapter 74.707 of the property code authorizes the Comptroller to waive the penalty or interest imposed on delinquent property if the holder has made a good faith effort to comply with Texas unclaimed property statutes.
Holders meeting this standard may submit a written request for a VDA. This request must include:
• Company Name • Company Contact Name • Contact Phone Number • Tax ID Number / Federal Employer Identification Number (FEIN) • Address • Email Address • Estimated Amount of Remittance
If contacted by the Comptroller’s office regarding an audit or an investigation, please indicate the date and year of contact.
Send the request via email to: [email protected] OR Mail to: Texas Comptroller of Public Accounts Holder Reporting Section P.O. Box 12247 Austin, Texas 78711‐2247
For questions about unclaimed property VDAs, you can call 800‐321‐2274, option 2. Additional Required Documentation
• Limited Power of Attorney (Comptroller Form 01‐137)
• Texas Nexus Questionnaire (Comptroller Form AP‐114)
• Voluntary Disclosure Agreement of Unclaimed Property Between the Comptroller of Public Accounts, the State of Texas and the Holder (Comptroller Form 53‐319)
• Texas Business Questionnaire (Comptroller Form AP‐224)
• Voluntary Disclosure Agreement Questionnaire
• Holder Report and Check due within 60 days of Holder signing the VDA Reporting Guidelines
What is Unclaimed Property?
Unclaimed property can be any financial asset that has been abandoned (i.e., no contact between the holder and owner) for periods ranging from one to 15 years.
Unclaimed property is not real estate and usually not physical property.
What is a Holder?
A holder is an entity/individual in possession of property belonging to another entity or individual.
Holders Include:
• Mortgage and Title Companies • Insurance Companies • Oil and Gas Companies • Businesses • Securities Brokers • Utility Providers • Local Government Entities • Institutions of Higher Education
Relevant Dates:
All property with the exception of life insurance
• Report year is March 2 through March 1 • Due diligence by May 1 • Report and payment due by July 1
Life insurance properties
• Report year is July 1 through June 30 • Due diligence by September 1 • Report and payment due by November 1 Steps for Reporting Unclaimed Property
For properties other than life insurance policies, holders are to review their records and identify any property they hold without owner contact as of March 1 every year. For holders reporting life insurance policies, the date is June 30.
1. Determine Dormancy – the amount of time from the last contact between the holder and the property owner. Dormancy periods range from one to 15 years depending upon property type. See Abandonment Periods tab or Unclaimed Property Quick Start Reporting Guide for complete list.
2. Perform Due Diligence – send a notice to last known address of owner stating that the holder has the property, and is required to submit it to the Comptroller’s office on or before the due date if they do not claim it. See Due Diligence tab for additional information.
3. Prepare Report – format property reports in the required NAUPA2 format. See Submit a Report for additional information.
4. Submit Report & Payment – submit reports electronically via one of the approved online submission methods. Reports on CDs or other physical media are not permitted and will not be accepted. Acceptable payment methods include check, wire or ACH debit/credit.
5. Archive Data – holders are required to preserve owner data and hold it for 10 years after reporting it to the Comptroller’s office. Abandonment Periods Due Diligence
Due diligence is required of those holding properties valued at more than $250 and presumed abandoned. The holder must mail a written notice to the reported owner at their last known address by May 1.
The written notice must state that:
1. the holder is holding the property; and 2. the holder may be required to deliver the property to the Comptroller’s office on or before July 1 if it is not claimed. Sample Due Diligence Letter – General Purpose Sample Due Diligence Letter – Financial Institutions “One gains at least two to three times more experience grabbing the tiger by the tail than reading about it in a book.” ~ Mark Twain Thank you!
Isreal Miller [email protected]
Gray Reed www.grayreed.com