In the present day, virtual currencies are becoming increasingly popular with cryptocurrencies, such as Bitcoin or Ethereum, being the most prominent examples. Virtual currency, also referred to as virtual money exists only in digital form and is used in specific internet communities.
Until recently, virtual currency was largely unregulated. However, as it gained popularity, instances arose in which it became unclaimed property, leading states to begin creating and enforcing regulations for reporting it.
Specifically, many states are now starting to incorporate dormancy rules for virtual currency into their laws. Dunbar can work with businesses to determine if these rules are included in the laws for the states where they will be reporting unclaimed property. While this is not an all-inclusive list, some of the states that have implemented these rules include:
- New York
- West Virginia
- Illinois
- California
- Florida
- Washington
- Colorado
- Delaware
- Kentucky
- Nevada
- North Dakota
- Tennessee
- Utah
Furthermore, many states are requiring that virtual currency be liquidated or converted to dollars before it is reported to them. This is because they are not technically capable of managing virtual currency accounts. Therefore, holders must cash out the virtual currency in order to ensure they not only remain compliant but the states are also able to appropriately handle the property once it is in their possession.
Unfortunately, when the virtual currency is liquidated, the rightful owner of the property may not have recourse for gains or losses associated with the liquidation of the currency for the unclaimed property reporting process. This means when the owner receives the dollar equivalent of the virtual currency, they will only be entitled to this amount. Any gains or losses that occurred are out of their control.
Also, it is important for companies to note that the definition of virtual currency is narrower than they might expect when it comes to the unclaimed property reporting process. In particular, holders should be aware that this definition does not include game-related digital currency or loyalty cards. This is digital currency used in online gaming communities as well as rewards earned by frequently doing business at a particular establishment.
Furthermore, companies will need to prepare to report virtual currency accounts as unclaimed property once they are presumed inactive. This occurs when there is no longer any indication of interest in the virtual currency by its rightful owner. Companies can determine an owner’s indication of interest in this property by monitoring when they last logged into the account the virtual currency is held in or when they last made a transaction. Once companies determine there is no indication of interest from the owner, the dormancy period begins.
It is important to note that companies that offer virtual currency are subject to the same notification or due diligence requirements as any other business. Therefore, once the dormancy period for the virtual currency expires, these companies must send letters to the last known addresses of the rightful owners of the unclaimed property. States usually mandate that these due diligence letters be sent 60 to 120 days before the unclaimed property is due to be reported. In these letters, companies must notify the owners that they are holding their property, and it will soon be transferred to the state unless they come forward and claim it. Once it is transferred to the state, owners will have to contact that state to get it.
Businesses looking to report virtual currency as unclaimed property for the first time may find the process confusing. However, Dunbar can come in and help. Our consultants can assist businesses in taking the correct steps of sending due diligence letters, liquidating the virtual currency, and reporting it to the state. Furthermore, they can help businesses ensure they are reporting the virtual currency to the correct state while following all of its unclaimed property rules and regulations. This will help guarantee these businesses report virtual currency as unclaimed property correctly the first time, ensuring they remain compliant while decreasing the likelihood they will be audited. The world of unclaimed property can be confusing for businesses that do not specialize in it. However, they do not have to dive in alone.
Dunbar is a reputable provider of unclaimed property compliance services, offering a comprehensive suite of solutions to help organizations remain compliant with all applicable laws. With a professional team with decades of experience, Dunbar is the ideal choice for businesses seeking a reliable and knowledgeable provider for their unclaimed property compliance needs.
