Top 10 Unclaimed Property Compliance Pitfalls

As the landscape of Unclaimed Property Compliance continues to change, many companies fail to fully comply

All states have laws regulating the reporting and remittance of unclaimed property. Also referred to as abandoned property or escheat, unclaimed property concerns the requirement that a company holding such property (as the holder) report it to the state of the owner’s last-known address after a statutory dormancy period has passed. The purpose of unclaimed property laws is to ensure that property is returned to its rightful owner, rather than retained by the holder, and to permit the public to benefit from the use of those funds until the true owner can be found.

Unclaimed property may include types of intangible property, as well as some tangible personal property, depending on state law. Common types of intangible unclaimed property include uncashed checks, unredeemed gift certificates and gift cards, layaways, deposits, refunds, rebates and accounts receivable credits, regardless of whether they remain on a company’s books or were written off to income or expense, such as bad debt.

Unclaimed Property Compliance Risk 

As of 2014, there was over $40 billion dollars of unclaimed property held domestically in the United States, and this number continues to grow. Companies that fail to correctly comply could be making a costly mistake. The reason lies in increased audits and forced compliance initiatives, along with associated penalties and interest for those that do not comply with state laws and regulations.

Here are the top 10 pitfalls companies fall into with escheat compliance:

  1. Blanket assumption that the Company does not have unclaimed property; thus filing a return isn’t required.
  2. Failure to develop and maintain written policies and procedures for mitigating liabilities.
  3. Not including stale-dated accounts receivable credits as part of the Company’s escheat process.
  4. Failure to perform due diligence in line with State requirements.
  5. Misinterpretation of Business to Business or de minimis exemptions set forth by certain states.
  6. Reporting all property to one state, no matter where the last-known address of an owner may be (this is known as “reciprocity”).
  7. Mis-apply “netting” concepts for fixed and determinable legally due and owing obligations.
  8. Not adhering to state record retention policies.
  9. Not keeping up with state law/administrative changes such as electronic reporting requirements, etc.
  10. Failure to report foreign address property.

Unclaimed property affects all companies and audits are being aggressively pursued by states in their quest for additional revenue. Accounting, tax and legal professionals should be mindful of unclaimed property in their day-to-day activities and in their policies for record retention. Those with potential deficiencies in their monitoring of unclaimed property should consider a voluntary disclosure or other compliance options.

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