Michigan: UP Audit Doesn't Toll Limitation Period

In Dine Brands Global Inc. and The Walt Disney Co. v. Eubanks, the Michigan Supreme Court held that the initiation of an unclaimed property (UP) audit by the state treasurer does not toll the statute of limitations. Absent express statutory language, the limitation period continues to run on a holder’s duty to report and remit unclaimed property, even during an ongoing audit.

Background

Michigan’s Uniform Unclaimed Property Act (UUPA) creates a legal presumption of abandonment for property that is “held, issued, or owing in the ordinary course of a holder’s business … for more than 3 years after it becomes payable or distributable.” Following the presumption of abandonment and other qualifications, the holder of abandoned property is required to remit such property to the state treasurer.

The treasurer has the authority to perform an audit-like examination of a business’s records to determine whether it has complied with the UUPA. When necessary, the treasurer may bring an action in court to enforce the UUPA. The UUPA contains a statute of limitations providing that “an action or proceeding shall not be commenced by the administrator with respect to any duty of a holder under [the UUPA] more than 10 years [or 5 years for records of transactions between two or more associations] after the duty arose.”

Dine Brands and The Walt Disney Co.

Both Dine Brands Global Inc. (parent of Applebee’s and IHOP) and The Walt Disney Co. were the subject of Michigan unclaimed property audits that began in 2013. The facts regarding the audit of each company are similar. The audits were multistate in nature, meaning that the treasurer and the appropriate administrator of numerous other states agreed to complete the audit. The treasurer and other states hired a third-party firm to conduct the audits. The firm reviewed each company’s records, including uncashed checks, unredeemed gift card balances, and other liabilities owed to consumers, dating back more than a decade to determine if either company failed to report and remit unclaimed property. The entire audit process for each company took between eight and nine years to complete.

Crowe observation

These cases are good reminders that unclaimed property audits can be prolonged, multistate in scope, and managed by third-party auditors.

Following each audit, the treasurer issued a determination requiring the companies to remit a significant amount of unclaimed property to the state. The companies objected, asserting that the statute of limitations for enforcing some or all of the claims expired because the state did not initiate a lawsuit within five or 10 years (depending on the type of property to be reported) from the time the companies were required to remit unclaimed property amounts.

The treasurer argued that its audit process tolled the statute of limitations and, therefore, the limitations period did not prevent it from initiating court proceedings.

The Michigan Supreme Court ruled that an audit does not toll the period the state has to collect amounts owed under the UUPA. The court noted that the UUPA contains no express tolling provision and that the legislature would have adopted language if it intended for an audit to toll the statute of limitations. The court contrasted Michigan with two other states – Delaware and North Dakota – that adopted provisions of the Uniform Law Commission’s Revised Uniform Unclaimed Property Act (RUUPA) and included express tolling language.

The court’s ruling didn’t fully resolve the companies’ issues. The treasurer argued a “new and distinct legal duty” is created as a result of issuing a final notice of audit. According to the treasurer, it acted within the statute of limitations when it initiated legal action within five years of issuing its final notice. The court stated that the potential existence of a separate postaudit duty that could be enforced for an additional period remains an open question and remanded the case back to the appellate court to resolve the question.

Looking ahead

The decision in Dine Brands Global offers critical insight into companies’ UP reporting and remittance obligations. Most notably, a state cannot extend audits beyond statutory limits.

Even though the decision arose under Michigan law, it highlights how taxpayers should closely review the statutory UP provisions in every jurisdiction where they operate to assess whether similar protections might apply.

For many companies, the risks posed by UP compliance are both underappreciated and widespread. The property types at issue – including wages and accounts payable – are common across all businesses, underscoring UP’s broad applicability across industry and company size. UP is not governed by typical tax statutes of limitations. Under UP law, some states may be authorized to examine records going back 10 years or more. With audits sometimes lasting nearly a decade, companies should proactively assess and strengthen their UP compliance to mitigate significant financial and operational exposure. Consulting with a UP adviser can help companies navigate the unique nontax complexities of state unclaimed property laws.