Haven’t verified this Bitcoin account for a while? Your state could have it liquidated
If you know that you have an old bitcoin or dogecoin account somewhere, but you have not yet retrieved your login details, a nasty surprise may await you.
With the rise of cryptocurrency, nine states have now adopted rules that include it as a form of unclaimed property and several others require or recommend that businesses declare their virtual currency unclaimed. This means that this fall, when banks, insurers, retailers, and state government agencies are required to report and remit unclaimed funds annually, your old cryptocurrency account could be liquidated and returned to the state unclaimed property office.
There are many concerns about this possibility, including that liquidating a cryptocurrency account prevents the owner from making future gains.
But there is also a broader economic problem, explains Kristine Butterbaugh, solution director at the tax firm Sovos.
“Some of our clients don’t want to wind up these accounts because that could impact the market as a whole,” she says. “We’re talking about millions of accounts, potentially, across the country.”
What confuses matters is the lack of clarity on the rules surrounding cryptocurrency. The Unclaimed Property Law is written for traditional property, but it is now enforced for non-traditional property.
Here’s how unclaimed property law generally works: Every fall, businesses are required to turn over any unclaimed property to the state. For accounts and other financial instruments to be considered unclaimed, they must be inactive for three to five years, depending on the state. This means that the account holder has not accessed the account or responded to any communication. Once the account is deemed unclaimed, it is transferred to the general state fund.
This is great when we are talking about a traditional bank account that only earns minimal or no interest. But states aren’t equipped to hold cryptocurrencies, so they’re telling companies to turn those accounts into cash before handing them over.
Now suppose you watched the meteoric rise of dogecoin last spring and decided to go hunting for coins you invested in on a whim a few years ago. And when you finally found them, you found out that your account had been liquidated in November, robbing you of thousands of dollars in potential winnings? You would probably be angry enough.
“Businesses are in a very awkward position because they don’t know whether or not they should wind up for fear of retaliation from the owner down the road,” says Butterbaugh. “And then you have the state that says, ‘You have to do it,’ even though it’s not explicitly in the statute.”
States are also motivated to enforce unclaimed property laws because it is a revenue gain for them. While the state keeps track of the amount owed and the rightful owner can potentially claim the money at any time, states can use the money for their general operations in the meantime. It may seem like a gamble, but only about 2% of unclaimed property is returned to the true owner, according to Accounting Today.
Delaware – home to over a million businesses – is one of the most aggressive states in auditing companies for compliance with unclaimed property laws and has secured hundreds of millions of dollars in over the past decade in unclaimed property and fines.
Thus, companies are stuck between not wanting to be criticized for non-compliance and being afraid of liquidating a cryptocurrency account. They want more clarity on what to do, and Butterbaugh says two locations – New York and Washington, DC – are working on a solution.
But in the meantime, she advises companies dealing in cryptocurrency to start processing their dormant accounts now.