This alert was updated as of September 2020.
Is your business holding unclaimed property such as employee payroll checks or vendor payables?
If so, it’s a good time to evaluate whether you’re responsible for filing unclaimed property reports.
Many states impose a November 1 deadline for filing and remitting property to the appropriate states. Failing to meet the deadline can lead to filing complications and costly penalties.
Each state has an unclaimed property program that requires businesses to report, or escheat, any unclaimed or abandoned property they hold.
Types of unclaimed property 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, which generally lasts from two to five years.
Report Unclaimed Property
Businesses holding unclaimed property may be required to make reasonable efforts, known as due diligence, to contact the owner and return the property. If a business can’t find the owner, the property must be remitted to its respective state, which may be any of the following:
- State of the last known address of the owner
- Property holder’s state of domicile
- State where the transaction took place
Determining the proper state can be complicated. It involves analyzing a cascading set of rules, and penalties may apply if a business doesn’t properly follow the rules or meet correct reporting conditions.
States often impose penalties on businesses that willfully fail to report or deliver unclaimed property. Here are a few examples of the penalties:
- Arizona—Charges $100 per day with a maximum penalty of $5,000 and a civil penalty of 25% of the property value
- California—Penalizes businesses $100 per day with a maximum penalty of $10,000
- Colorado—Charges $100 per day with a maximum penalty of $5,000 and a civil penalty of 25% of the property value
- Oregon—Imposes a civil penalty of up to $1,000 for individuals and $50,000 for corporations
- Texas—Levies a penalty of 5% of the property value, increases to 10% after 31 days
- Washington—Charges $100 per day with a maximum penalty of $5,000 and a civil penalty of 100% of the property value
Many states also impose interest for failing to report or deliver unclaimed property.
It’s worth noting that some states allow unclaimed property audits to look back as far as 10—or even 20—years. Many businesses have a hard time complying with or contesting these audits—they’re often expensive, and records for less-recent periods may be missing or incomplete.
Remit Unreported Property
Many states offer voluntary disclosure or amnesty programs that may allow a business to remit previously unreported property without penalty.
These programs allow companies to do the following:
- Clear outstanding credit memos and uncashed payroll checks
- Reduce risk of being assigned 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 can review their records and identify any unclaimed property they may hold. If any identified property is reportable in the current year, a business can then determine answers to the following questions:
- Do due diligence letters need to be sent to the owner?
- Which states require reporting?
A company can also benefit from reviewing unclaimed properties it holds 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 reporting is rarely straightforward. To avoiding costly penalties, it’s important for a company to determine whether it has property subject to unclaimed property laws and identify due diligence and filing requirements.
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 firstname.lastname@example.org.