Keanotes

Virtual Currency Update

By Heather Gabell, Director of Compliance

December 19, 2019

Virtual Currency and RUUPA

Virtual currency was first directly addressed in unclaimed property in the Revised Uniform Unclaimed Property Act (“RUUPA”), a model act issued by the Uniform Law Commission in 2016. RUUPA defines virtual currency as a digital representation of value used as a medium of exchange, unit of account, or store of value, which does not have legal tender status recognized by the United States. The term excludes the software or protocols governing the transfer of the digital representation of value, game-related digital content and loyalty cards (or gift cards). Those states that have revised their laws based on RUUPA (Colorado, Illinois, Kentucky, Tennessee, Utah, and Nevada, to an abbreviated extent) either include similar definitions of virtual currency in their law, or include virtual currency within the definition of “property.” However, neither RUUPA nor any of these states provide further detail on handling virtual currency as unclaimed property under their laws.

While states could argue that virtual currency falls under their law’s “catchall” provision, the “catchall” generally requires that property be “due and payable. ” The verdict is still out on whether virtual currency is ever due and payable, and if virtual currency providers have the necessary control over these assets to remit them to the state even if they do have the obligation to report them as unclaimed.

NV S 44 – Effective 7/1/19

Nevada enacted NV S 44[1], effective July 1, 2019. The definition of “property” was revised to include virtual currency or interest, but a specific dormancy period/ presumption of abandonment was not included. Note, however, that Nevada also updated its Reporting Manual[2] for Fiscal Year 2020 to include the following guidance:

“Virtual currency or interest” falls under the definition of property and, as such, subject to unclaimed property laws. Prior to July 1, 2019, virtual currency was deemed property under “a fixed and certain interest in intangible property that is held, issued or owed in the course of a holder’s business” under NRS 120A.113.

The presumption of abandonment for virtual currency is covered under NRS 120A.500(1)(n), through June 30, 2019 and SB44 (2019) Section 11(1)(o) effective July 1, 2019. For reporting purposes, the property-type code for virtual currency is MS17 “Miscellaneous Currency”.

As Nevada does not currently have the capability to receive virtual currency in native form, it is to be liquidated prior to submitting the report, with the cash value on the date of liquidation included on and remitted with, the report. As reports are due before November 1 of each year, it is recommended that the liquidation be no earlier than one month before remitting the report and that the date for liquidation remain consistent from year to year. [3]

Thus, virtual currency has been a reportable property type, even prior to the law change and continues to be reportable under the catchall provision. Nevada also requires the holder to liquidate the virtual currency and include the date of liquidation and the cash value, on and with the report.

NY A 8314 – Pending

Introduced on June 13, 2019, NY A 8314[4] provides that virtual currency escheats to the state of New York after a 3-year dormancy period, if the entity holding it has engaged in “virtual currency business activity” and the owner’s last known address is in New York, or if the entity is incorporated in New York (if the address is unknown). “Virtual currency business activity” is defined in the bill as (i) receiving virtual currency for transmission or transmitting virtual currency, except where the transaction is undertaken for non-financial purposes and only involves a nominal amount of virtual currency; (ii) storing, holding or maintaining custody or control of virtual currency on behalf of others; (iii) buying and selling virtual currency as a customer business; or (iv) controlling, administering, or issuing a virtual currency.

The comptroller is authorized to sell virtual currency, as soon as he or she deems practicable, at his or her discretion. Liquidating virtual currency upon receipt means that a claimant would only be entitled to the proceeds of the sale at the time of liquidation, and would not entitled to any appreciation in value. This could be viewed as an unconstitutional taking under the US Constitution. Further, it is more difficult for an owner to claim the virtual currency once it is liquidated by the state.

Note that while the New York bill includes both a presumption of abandonment and a liquidation provision for virtual currency, the Nevada law simply defines virtual currency. The presumption of abandonment and liquidation language is provided only in the guidance set forth in the recently updated reporting manual.


[1] For the full text of NV S 44, see: https://www.leg.state.nv.us/App/NELIS/REL/80th2019/Bill/5963/Text.
[2] http://www.nevadatreasurer.gov/uploadedFiles/treasurer.nv.gov/content/Unclaimed_Property/Forms/ Holder/Holder_Reporting_Manual.pdf, p. 5, 20.
[3] Id.
[4] For the full text of NY A 8314, or to check on the status of the bill, see: https://nyassembly.gov/ leg/?default_fld=&leg_ video=&bn=A08314&term=2019&Summary=Y&Actions=Y.

I'm looking for information on...