The Importance of Maintaining Unclaimed Property Compliance

For years, companies could plead ignorance when it came to reporting unclaimed property. It’s not technically a tax, so this function tends to roam from department to department in search of a home. You won’t find unclaimed property in accounting textbooks (I am probably dating myself by saying “textbooks”) or on the CPA exam. And for years, states patiently prodded to get holders to fulfill their reporting obligations with little success. That has all changed in recent years. As states desperately attempt to meet their annual budgets, they are stepping up unclaimed property audits.Unclaimed property is an ideal way to bring in revenue without increasing taxes and companies now need to make it a priority to not only get into compliance but also to fulfill their annual reporting obligations. Unclaimed property needs to be treated with the same level of importance as Sales & Use Tax, Personal Property and Income Tax returns.Once companies file their initial report in a state, it is paramount that steps are taken to ensure compliance is an annual occurrence. More than 40 annual state reports are due on either October 31 or November 1. As such, companies should already be focusing on their compliance in these Fall reporting states. As part of the unclaimed property compliance process, companies should have well documented policies and procedures that include an annual timeline, which outlines the steps that need to be taken to ensure proper compliance. These steps generally include the following:

1. Gathering of Potentially Reportable Data: Companies need to know where their reportable items emanate. In most cases, liability can be in the form of uncashed payroll and A/P checks as well as unused A/R credits. However, there are dozens of additional property types to consider depending on the industry of your company.
2. Determine what Items are Currently Due: States provide for a dormancy period depending on the property type. Learn what checks/credits are due for the upcoming reporting season.
3. Issue Due Diligence Letters: Nearly every state requires companies to perform due diligence in an attempt to give the owner one last chance to claim their property before escheatment. It is important to check each state’s requirements for issuing a letter, including – type of letter to be mailed (i.e. – 1^st class mailing or Certified) and dollar aggregate threshold. Although there are exceptions, letters should generally be mailed 60-120 days before issuing a state report.
4. State Reports: Once the due diligence deadline has passed, it is time to process state reports. All states are a little bit different when it comes to their requirements – so be sure to check online filing requirements, methods of acceptable payment, notarization requirements on the cover sheet, etc.

State record retention requirements are generally 10 years plus dormancy period (longer than IRS record retention rules). Therefore, it is important to maintain all reporting data for at least 10 years after the issuance of reports.I have seen far too often companies go through a painful audit or lengthy Voluntary Disclosure Agreement project only to fail to follow that up by not filing annual returns thereafter. Although it is important to take that first step and file initial returns for all past due property, of equal importance is developing a sound process to ensure continued compliance. For any questions, feel free to email Eric Mauldin at emauldin@cviewllc.com.