How U.S. Cryptocurrency Investors Can Profit From Unclaimed Property Rules Tax Reporting

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As the deadline for businesses to file their reports on unclaimed property approaches, many businesses are considering including information on misplaced cryptocurrency passwords or lost cryptocurrencies.

According to, unclaimed funds, of which unused gift cards may be an example, are often reported on by institutions such as retailers, banks, state government agencies, and insurers.  Cryptocurrencies such as Bitcoin and Ethereum, being virtual in nature and growing in use and popularity.  The downside to these currencies is that the keys, passwords and digital wallets used to access them can be lost, which renders the currencies unclaimable.  This presents accountants with a distinct challenge in the businesses they serve.

According to Robert Peters, director of Duff & Phelps Unclaimed Property and Tax Risk Advisory, some states have adopted rules where unused Bitcoin, as an example, could be included as a form of unclaimed property.  He goes on to say that more and more states are broadening their definition of unclaimed property to include unused or lost cryptocurrencies.

Many businesses are working towards completing their fall filings of accounts before November.  All financial instruments that have gone dormant for the specified period of time, typically three to five years, would be valid for this type of reporting, but this may vary from one state to another.

As a result of these laws differing between states, the upcoming reporting season may entail re-organizing dollar thresholds, due diligence mailing dates, as well as the completion of electronic paper filing and payment requirements.


Tax Planning For Cryptocurrency U.S. Investors


Scott Regan, another director of Duff & Phelps Unclaimed Property and Tax Risk Advisory, cautions that the upcoming reporting deadline dates, being October 31 and November 1, apply to 40 states.  The lack of uniformity between these states and the subtle differences in their application of the filing rules presents corporate accountants with a strong challenge.

Adding to these challenges is that there are different dormancy periods for different types of property, where dormancy is the amount of time before the property is considered abandoned.  It only becomes possible, after this lapsed time, to report it or remit it to the state.  The notification requirements may differ from state to state, from requiring certified mailings, minimum threshold limits, or issuing of letters within 60 or 120 days prior to filing, depending on the specified requirement.

Dates, dormancy periods, due diligence requirements and deadlines are all aspects that need to be taken into consideration, and this presents accountants with a mammoth task ahead of them before the filing season closes.

In 2016, the Uniform Law Commission passed the Revised Uniform Unclaimed Property Act, but it has not, as yet, been integrated and fully adopted by many states.  This lag in switching to a more uniform system is causing a significant amount of confusion for corporations affected by it.  Tennessee, for example, has recently switched from being a spring reporting state to a fall reporting state, which has made reporting a moving target for all the affected entities.

Businesses or individuals that would like to report on misplaced cryptocurrency keys or wallets, will be challenged by this lack of consistency between states.  Currencies deemed to be dormant as defined by the state they are owned in, may be claimed by the state from the issuing company, and it would seem these companies are specifically being targeted.

Even if the cryptocurrency exchanges that hold the currencies are located abroad, the rules regarding dormancy may still apply if the owner is resident in the U.S.  Technically, the rules apply in the owner’s location, but subtleties in the rules and how they are applied in the various states, need to be taken into consideration.

Even though cryptocurrencies are reasonably new, unclaimed property rules have been challenging accountants in the more traditional aspects for many years.  Gift cards and loyalty programs are just two such challenges.

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Where rewards are earned by customers from dollars they have spent, these rewards may have the potential to be converted into a form of cash or something with a cash value.  If these rewards remain unused, they may be deemed to be unclaimed property.  Illinois is just one state that applies the rule in this manner.

Peters cautions retailers to pay careful attention to the changes under the Revised Uniform Unclaimed Property Act.  Gift cards that may not have needed to be reported as unclaimed property in the past, may need to be reported as such now.

Some states pursue unclaimed property quite aggressively, because it could mean significant revenues for them.  In a Supreme Court case, something as simple as not having a known address for the customer or vendor results in the state of incorporation becoming entitled to that property.  Delaware is the state of incorporation for most of corporate America, and this state has claimed billions of dollars in unclaimed property over the past several years.  The audit campaigns launched by the state of Delaware are distinctly focussed on unclaimed property, because, in their estimation, as much as 95% of companies are non-compliant in this area of tax assessment.  Tax audits can go back as far as 15 years if a company has not kept adequate records.  This, naturally, has a huge impact on the affected companies.

Other states are increasing their focus in this area of interest.  Bands of third-party contingent-fee auditors are hired to conduct audits across multiple states, with their primary aim being to recover the unclaimed property.  As little as only 2% of what is investigated will find its way back to the actual owners.

Companies need to educate themselves on the changes in these rules, and the differing deadlines for unclaimed property.  Compliance reporting is a fall deadline for most states.  The rules in these states are specific regarding what and how property gets reported on.  The vast changes in unclaimed property reporting rule over the past several years may even be missed by sophisticated entities.  Companies that prove to be non-compliant tend to be first in line for audits, placing a significant compliance burden on them.

States have honed their ability to identify potentially non-compliant companies, which usually results in large penalties and fees levied against these companies.  The most likely entities to be found to be non-compliant are companies owned by foreign parent companies.  The states have learned to target these entities, as it is common that the foreign entities do not understand the U.S. tax requirements in enough detail to ensure they are compliant when reporting season is upon them.

Companies that tend to claim expenses as a cost of conducting their business, need to be aware of the tax implications of doing so.  As an example, issuing a credit to a customer results in an expense to the business because sales revenue has already been reduced by the credit amount extended to the customer.  Uncashed checks issued to vendors would create the same type of effect.  A whole series of new accounting rules have come about regarding more complex situations such as gift cards.  Companies that issue gift cards essentially end up needing to maintain three sets of financial records:  one for tax, one for unclaimed property and the third for the reporting of their financial statements.

So, in summary, any organizations preparing for the fall reporting season need to pay particular attention to the unclaimed property aspects of their financials and ensure the requirements for their particular state have been met in this regard.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intended for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

If you would like to benefit from our expertise in these areas, or if you have further questions on this advisory, don’t estimate to contact our specialists or call us 786 462 7899.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me and follow us on Facebook : FAS CPA & Consultants.

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