Is your business holding any unclaimed property, such as employee payroll checks or vendor payables?
If so, now is a good time to evaluate whether you have a responsibility to file unclaimed property reports. Many states impose a November 1 deadline for filing and remitting property to the appropriate states to avoid costly penalties.
Every state has unclaimed property, also known as escheat, programs that require businesses to report any unclaimed or abandoned property they hold.
Types of unclaimed property may include the following:
- Dormant savings or checking accounts
- Life insurance policies and annuities
- Unused gift certificates
- Other miscellaneous outstanding checks
These types of property generally become unclaimed and subject to state reporting requirements after a specified period, known as a dormancy period, that generally lasts from two to five years.
Where to Report
Businesses holding unclaimed property may be required to make reasonable efforts to contact the owner and return the property, which is known as due diligence. If a business can’t find the owner, the property must be remitted to its respective state, which may be any of the following:
- The state of the last known address of the owner
- The property holder’s state of domicile
- The state where the transaction took place
Determining the proper state can be complicated and involves analyzing a cascading set of rules. If those rules aren’t followed properly, or conditions for reporting aren’t met, penalties may apply.
Generally, states impose penalties on businesses failing to report or deliver unclaimed property. Examples include the following:
- Washington—$100 per day with a maximum penalty of $5,000 and a civil penalty of 100% of the property value
- California—$100 per day with a maximum penalty of $10,000
- Arizona—$100 per day with a maximum penalty of $5,000 and a civil penalty of 25% of the property value
Some states also impose interest for failing to report or deliver unclaimed property.
A number of states allow unclaimed property audits to look back as far as 10 or even 20 years. These audits are often difficult and expensive for businesses to comply with and contest because records may be missing or incomplete for less recent periods.
Voluntary Disclosure or Amnesty Programs
Many states offer voluntary disclosure or amnesty programs that may allow a business to come forward and remit previously unreported property without penalty.
These programs give companies the chance to:
- Clear outstanding credit memos and uncashed payroll checks
- Reduce their risk of being assessed large penalties and interest on outstanding unclaimed property filings
- Avoid time-consuming due diligence requirements in the event of a transaction
To avoid costly penalties, businesses will want to review their books and records to identify any unclaimed property they may hold. Then, if reportable this year, determine the following:
- Whether due diligence letters need to be sent to the owner
- Which states require reporting
It’s also beneficial for companies to review unclaimed properties they hold from prior years. If a report wasn’t previously filed, consider entering into voluntary disclosure agreements or reporting under available amnesty programs.
Unclaimed property laws are complex, and identifying the states that require reports is rarely straightforward. Determining whether a company has property subject to unclaimed property laws and identifying due diligence and filing requirements are important first steps for avoiding costly penalties.
We’re Here to Help
For more information about unclaimed property or to understand its implications for your business, contact your Moss Adams professional or email email@example.com.