Illinois makes push to capture unclaimed property
Unclaimed property continues to gain traction as a way to increase a state’s revenue, with Illinois joining several states in targeting small-to-medium-sized businesses for a self-audit of unclaimed property through a third-party provider.
Self-audit notices help states capture prior years’ unreported unclaimed property while also helping businesses to be diligent in complying with unclaimed property laws.
To avoid potential penalties, here is what your business should know about self-audit notices:
What is the self-audit?
The self-audit calls for companies to review their own records while also providing resources to better understand the unclaimed property laws of a particular state.
Subsequent of an internal review, the company is required to submit the self-audit form to the state, typically within a 45-day period.
It is important to note that the mere receipt of a self-audit notice serves as a warning to companies that they may have unclaimed property reporting requirements in the state. It’s also a warning that future failure to identify unclaimed property, and appropriately report and remit it to the state, will be considered an intentional act of disregarding the rules and regulations of the state. This can result in increased penalties and interest and, depending on the state, can even open the company to legal action.
Many states, including Illinois, may also require a negative filing regardless of whether there is unclaimed property to report for the state. For a negative filing, business must confirm they do not have unclaimed property to report for the current year.
In addition to the self-audit notices, some states, such as California, have recently introduced amnesty programs or have provided increased education surrounding the rules and responsibilities of a business with respect to the escheatment of unclaimed dormant funds to ensure proper reporting.
How to address a self-audit notice
Upon receipt of a self-audit notice from a state, a business will have approximately 45 days to provide a response that should disclose what, if any, unclaimed property may have been discovered through the self-assessment completed after receiving the notice. A thorough review of books and records should be done by the business to ensure that they have captured any potential unclaimed property.
Common forms of unclaimed property include:
- Uncashed checks (both payroll and vendors’ checks)
- Unreturned customer deposits
- Customer, client or patient credit balances
To the extent a business has property owed to individuals or businesses otherwise — such as securities, benefits, etc. — those items should also be identified and reported to the state where the property owner resides.
The self-audit process
While the self-audit process may change from state to state, the process is generally as follows (including illinois unclaimed property):
- Taxpayer receives a self-audit notice.
- Taxpayer provides confirmation of receipt either by email or through an online form as prescribed by the state.
- After compiling data or confirming the lack of unclaimed property, a business should complete the online self-audit report, form and worksheets.
- Once the report and worksheets are submitted, a business will have no further obligation until a response is received by the state or their third-party auditor.
- To the extent property must be reported and remitted after review by the state, additional instruction will be provided to a business to ensure the property is escheated appropriately.
A business should be diligent in their review process, as most states will allow the self-audit unclaimed property to be reported and remitted without penalty and interest despite the delinquent filings.
Additionally, the responses provided by a business will be evaluated by the state and a third-party auditor. Not disclosing unclaimed property can result in significant penalties and interest, as well as other, more severe punishment, if it’s clear that a business purposely chose not to disclose unclaimed property revealed during the review.
How Wipfli can help
The state and local tax team at Wipfli handles a variety of unclaimed property services, including consulting, compliance and reviews. Whether you have a received a self-audit notice from a state, need help addressing prior years’ unclaimed property or even need assistance with future unclaimed property compliance, Wipfli has the resources to help.
Contact us today and discover how we can help you with our state and local tax services.
Sign up to get more state and local tax content in your inbox or continue reading:
