Cryptocurrency and Digital Assets: Emerging Unclaimed Property Compliance Challenges

The rapid growth of cryptocurrency and other digital assets is transforming financial markets and business operations. What began as a niche investment has evolved into a broad ecosystem that includes payment platforms, digital wallets, tokenized assets, stablecoins, rewards programs, and institutional custody services.

 States are increasingly addressing virtual currency and digital assets through their unclaimed property laws. At least 20 states have enacted laws specifically addressing virtual currency or digital assets, with requirements varying significantly among jurisdictions. In addition, states that have not specifically addressed this property type in their statutes are still considering the property reportable in their catch-all provisions. We are aware of several recently initiated multistate third-party unclaimed property audits of companies in the digital assets space expressly focused on “Customer Virtual Currency Accounts.” 

Historically, unclaimed property compliance has focused on traditional property types such as payroll, accounts payable, customer credits, securities, gift cards, and mineral proceeds. As adoption of digital assets continues to grow, regulators are considering how longstanding unclaimed property principles should apply to these emerging asset classes. 

For organizations that hold or manage digital assets, the question is no longer whether this issue deserves attention—it is whether existing compliance programs are positioned to comply with state laws governing the reporting and remittance of digital assets. This issue is now at the forefront with the states and their third-party audit vendors. 

Why Digital Assets Present New Compliance Challenges 

Traditional unclaimed property laws were developed long before blockchain technology existed. Although the underlying principles of abandoned property remain the same, digital assets introduce operational and legal considerations that many organizations have not previously encountered. Digital assets can experience significant price volatility and may be maintained through custodial arrangements or technologies that existing unclaimed property systems were not designed to accommodate. 

A significant difference among state requirements is how digital assets must ultimately be remitted. Some states require companies to liquidate digital assets and remit cash proceeds, while others provide for the assets to be transferred in kind. These differing approaches can create challenges involving valuation, timing, custody, recordkeeping, and changes in value. As states continue to modernize their laws, we expect digital assets to receive greater scrutiny during compliance reviews and unclaimed property audits. 

Five Questions Every Company Should Be Asking 

1. Does Our Organization Hold Digital Assets?  

Today, unclaimed property obligations involving digital assets are most likely to arise within cryptocurrency exchanges, financial institutions, fintech companies, payment processors, and other organizations that hold or manage digital assets.  

Potential corporate holders of digital assets may include:   

• Cryptocurrency exchanges 

• Custodial wallet providers 

• Financial institutions 

• Fintech companies 

• Payment processors 

• Broker-dealers 

• Employers maintaining digital asset obligations to employees 

• Businesses retaining, administering, or owing digital assets to customers or other parties 

• Organizations administering tokenized rewards or loyalty programs involving digital assets 

The first step is to understand whether digital assets exist within the organization, the capacity in which they are being held or administered, and which legal entity is responsible for the underlying obligation. 

Notably, some state virtual currency provisions expressly reference corporations in addition to traditional financial institutions, custodians, and exchanges. Florida, for example, includes corporations within its statutory language, although the scope of these provisions may depend on the nature of the entity’s virtual currency activities and the specific language of the applicable state law.    

As digital assets become more common in commercial transactions, this analysis may become relevant to a broader population of companies outside the financial services industry.   

2. How Should Dormancy Be Determined? 

Traditional property types generally rely on well-established indicators of owner inactivity.   

Digital assets present additional considerations because there is not yet a uniform approach for determining what constitutes evidence of owner interest. As states continue to develop requirements for digital assets, companies should periodically review their dormancy policies and procedures.   

Companies should evaluate whether the following activities constitute evidence of continued owner interest:   

• Wallet access (logging in to a digital asset account) 

• Transfers of digital assets between wallets 

• Other transactions or account activity that may demonstrate continued owner interest 

• Owner-directed blockchain activity, including activities associated with staking or validating transactions 

Certain states have also begun addressing blockchain-specific concepts in their unclaimed property laws. For example, Arizona expressly addresses staking, staking rewards, and airdrops in its treatment of abandoned digital assets. These provisions illustrate the potential for state laws to address unique characteristics of digital assets that do not have direct analogs in traditional property types.   

Organizations should also consider how assets arising from forks (changes to a blockchain that may create a new digital asset) or airdrops (the distribution of digital assets to existing wallet holders) should be treated under applicable state law.   

Because unclaimed property laws generally rely on evidence of owner interest to determine dormancy, companies should establish and document a consistent methodology for evaluating whether relevant digital asset activity affects the dormancy period.  

3. Can Existing Systems Support Compliance?   

Even organizations with mature unclaimed property programs may discover their systems were not designed to manage digital assets.   

Companies should evaluate whether they can:   

• Identify the legal owner of each asset 

• Track owner activity 

• Determine dormancy dates 

• Maintain historical transaction records 

• Document valuation methodologies 

• Produce audit-ready reports 

Without reliable data, responding to future examinations may become significantly more difficult.   

4. How Will Digital Assets Be Reported? 

Unlike cash, digital assets may experience substantial price fluctuations over relatively short periods. As states adopt differing statutory frameworks, companies may face questions regarding:   

• Whether digital assets must be liquidated before remittance 

• Whether assets must be transferred in kind 

• Whether transfer can occur without access to a private key 

• When and how value should be determined 

• Which state’s requirements apply 

For companies operating in multiple jurisdictions, these differences may require separate reporting and remittance processes depending on the applicable state.   

5. Is the Organization Prepared for an Audit?   

As legislation and state requirements develop, audit requests could evolve as well. 

Future examinations could seek information regarding:   

• Digital asset inventories 

• Custodial relationships 

• Owner activity policies 

• Dormancy calculations 

• Reporting methodologies 

• Internal governance 

• Written compliance procedures 

• Blockchain transaction histories 

• Wallet administration practices 

Organizations that establish documented policies before receiving an audit notice will generally be better positioned to respond consistently and efficiently.   

Practical Steps Organizations Can Take Today   

Although the legal landscape continues to evolve, companies do not need to wait for every state to enact digital asset legislation before assessing their compliance posture: 

• Identifying digital assets maintained on behalf of others 

• Determining which legal entities are responsible for those assets 

• Understanding the nature of the obligation associated with the digital asset 

• Reviewing current unclaimed property policies to determine whether digital assets are addressed 

• Evaluating systems used to identify owner activity and calculate dormancy 

• Determining applicable state reporting and remittance requirements 

• Coordinating among Tax, Treasury, Accounting, Legal, Compliance, and Information Technology 

• Monitoring legislative and regulatory developments 

• Documenting compliance decisions before reporting obligations arise 

Looking Ahead: Beyond Financial Services?   

Although digital asset custody and related unclaimed property obligations are currently concentrated in the financial services and digital asset industries, the use of digital assets in commercial transactions continues to expand.   

As companies outside these industries increasingly hold, administer, or incur obligations involving digital assets in transactions with customers, employees, vendors, and other third parties, the population of potential corporate holders of digital assets may expand as well. A company that incurs an obligation denominated in digital assets, maintains digital assets on behalf of another party, or otherwise becomes responsible for returning digital assets to an owner may eventually confront many of the same unclaimed property questions faced by financial services companies today.   

The asset may be new, but many of the underlying compliance questions are familiar. Companies will still need to determine whether an obligation exists, who is responsible for that obligation, when the owner’s activity ceased, which jurisdiction has the right to receive the property, and how the property must be reported and remitted.   

For that reason, organizations outside the traditional financial services industry may want to begin considering whether their existing unclaimed property policies, systems, and controls can accommodate digital assets as their use in ordinary commercial activity expands.   

How Ryan Can Help   

The regulatory landscape for cryptocurrency and digital assets continues to evolve. Ryan’s Abandoned and Unclaimed Property professionals help organizations identify emerging compliance risks, evaluate reporting obligations, develop practical policies and procedures, and defend unclaimed property audits. Whether your organization is assessing its current digital asset exposure or preparing for future regulatory developments, Ryan can help you build a defensible compliance strategy.   

Because state laws governing cryptocurrency and other digital assets continue to evolve, organizations should evaluate applicable requirements in each jurisdiction where they may have reporting obligations.   

Contact Ryan to assess your organization’s digital asset unclaimed property exposure and build a defensible compliance strategy. 

Authors

Jeff Pickel
Principal

Scott Regan
Senior Manager 

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.