Are you familiar with unclaimed or abandoned property? How is your organization currently handling its obligations with respect to accounting for, tracking, and ultimately reporting and remitting these funds to the appropriate state government for safekeeping?
What is unclaimed or abandoned property?
Unclaimed property refers to accounts (i.e., intangible financial assets) and, in certain cases, tangible personal property held by financial institutions and business associations as liabilities on their books that have had no activity generated by or association contact with the owner for one or more years. After a certain amount of time elapses (dormancy period) without owner activity or contact (typically one to five years, dependent on the state in which the property is held and the type of property), the property reaches its dormancy period and becomes reportable to a state government in the absence of reunification with the true owner.
The “holder” is the business or other entity that holds inactive property which is payable or distributable to another.
Common examples of unclaimed funds you may be currently holding are:
- Accounts payable
- Vendor checks
- Payroll, wages, bonuses, and reimbursable employee expenses
- Refunds and deposits
What states currently have unclaimed property laws in place?
Every U.S. state, the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands have unclaimed property laws.
Are any types of entities exempt from reporting unclaimed property?
No, as a property right and not a tax, any exemption from federal and state income tax has no bearing on an organization’s responsibility to report and remit property when found due, owing, and having reached its dormancy period. Property rights do not expire. Consequently, an organization is not afforded any statutory protections for prior years in which property was not reported and remitted.
Are there any methods or opportunities to limit an organization’s potential unclaimed property liability?
Yes, many states now offer Voluntary Disclosure Agreements (VDA) that typically provide for (1) a limited look-back (e.g., last 10 reporting years) for past missed reporting years, (2) a waiver of interest, (3) a waiver of penalties, and (4) limitations on future audits.
What state has the right to take custody of the unclaimed property?
There is a two-step state sourcing hierarchy (priority rules) established under U.S. Supreme Court Case Texas v. New Jersey (February 1, 1965) that currently governs which state has primary and, when applicable, secondary claim to the property.
Primary: The state of last known address, as reflected in the holder’s business records, of the owner of the unclaimed property.
Secondary: If the holder does not have a record of the last known address of the owner of the property (or that state does not have unclaimed property laws applicable to the property type[s] in question), the holder’s state of corporate domicile or, alternatively, state of incorporation gets to claim the property.
What are my organization’s responsibilities?
Since every state has statutory unclaimed property laws in place, every organization, regardless of type, structure, or location, is responsible for reviewing its books and records on at least an annual basis in search of property accounts that have reached their dormancy. Prior to reporting and remitting the property amounts to the proper state of custody, you are required to perform due diligence (all but a handful of states require this effort by law). This requirement entails a final attempt to reunite the owner with his or her property and involves mailing a letter to the owner based on the last known address represented on your organization’s books and records.
How do I determine whether my organization is owed unclaimed property?
The Missing Money website provides a search option containing the records for most states and Canadian provinces. You may search for both businesses and individuals.
If you or other members of your organization have any questions or are interested in learning more about unclaimed property in general or specific reporting requirements for your organization’s state of domicile, please contact Daryl Ohland in Wipfli’s State and Local Tax Practice at firstname.lastname@example.org or 920.832.2437.