Unclaimed Cooperative Property
2005 Legislative Changes

Jenelle Laska of winona, MN, was awarded the MAC Education Foundation's 2005 education scholarship, one example of how unclaimed co-op property can be distributed through a tax-exempt organization like the foundation.

This past legislative session, Minnesota’s cooperative statutes 308A and 308B were amended to make changes to the alternative procedure to disburse unclaimed patronage dividends and capital credits held by the cooperative.  These changes became effective August 1, 2005.  Under both state cooperative statutes, cooperatives can take advantage of a unique provision—referred to as the alternative disbursement procedure—that allows cooperatives to distribute unclaimed patronage dividends and capital credits to qualifying tax-exempt entities.  This fact sheet was prepared to help explain these changes.

What has changed?  Cooperatives are no longer required to report unclaimed capital credit or unclaimed patronage dividend checks to the Minnesota Department of Commerce unless the cooperative chooses to surrender the property to the state.  However, all other un-cashed checks written by the cooperative—business-to-business checks, payroll, accounts receivable credits, etc—must still be reported to the department annually by filing a Holders Report with the department. 

Are patronage dividends and capital credits subject to reporting in Minnesota if the last known address is not a Minnesota address?  No.  Minnesota’s unclaimed property laws only apply to property that belongs to a resident of Minnesota.  Cooperatives are subject to the reporting requirements of another state if the payee’s last known address is in a state where reporting is required.

Does this change affect reporting of unclaimed cooperative property other than patronage dividends and capital credits?  No.  Un-cashed checks other than unclaimed patronage dividends and capital credits checks must be included on the annual Holders Report filed with the Department of Commerce by November 1 of each year for property that was outstanding on or before June 30 of that year.

Must my cooperative submit a 2005 Holders Report to the Minnesota Department of Commerce for unclaimed patronage dividends or capital credits that were outstanding prior to June 30, 1998?  No.  When your cooperative prepares its annual Holders Report, exclude unclaimed patronage dividends and capital credits if the cooperative distributed the property following the alternative disbursement procedure.  If the cooperative has no outstanding checks—see page six of the Holder Reporting Guide—to report, complete and submit the verification form as a negative report.

How do patronage dividends or capital credits become unclaimed property?  Capital credits and patronage dividend checks that remain unclaimed for seven years after first being made available to their owner are considered abandoned property provided proper notice of availability has been given.  In order to disburse unclaimed capital credits and patronage dividends to a qualifying tax-exempt organization, a cooperative is required to send a due diligence letter to the last known address, or if the address is unknown, then the notice must be published in the official publication of the cooperative.

What is considered an acceptable notice period?  The changes to the cooperative statutes do not set forth a minimum noticing period.  However, Minnesota’s general unclaimed property law establishes a 120-day due diligence period.  Therefore, cooperatives should consider delaying disbursement by 120 days after a final notice has been sent to the owner, or if the location of the owner is unknown, 120 days from the date the notice of availability was published in the cooperative newsletter.

Must our cooperative distribute property following the alternative cooperative statute procedure to disburse cooperative property?  Most cooperatives elect to distribute unclaimed patronage dividends and capital credits to a qualifying tax-exempt entity like the Minnesota Association of Cooperatives Education Foundation by following the alternative disbursement procedure.  As an alternative, cooperatives can also surrender the property to the State of Minnesota. 

What is a qualifying tax-exempt entity?  Minnesota law considers government entities and most tax-exempt organizations under Subchapter F of the Internal Revenue Code as qualifying entities.  However, as an example, Minnesota law does not allow farmers’ cooperatives to distribute unclaimed patronage dividends or capital credits to themselves under the alternative disbursement provisions.  Refer to 308A.711, Subdivision 1, or 308B.735, Subdivision 1 of the Minnesota statutes for more details.

For more information, feel free to contact Amy Fredregill, Managing Director of Cooperative Network at (651) 228-0213 or Ron Hennen of Hennen & Associates at (651) 255-3201.

Materials prepared by the Cooperative Network with appreciation to Ron Hennen, Hennen & Associates, St. Paul, MN.