Abandoned property rules: The beginner’s guide to compliance

What many individuals and small organizations know about unclaimed property is limited to “Find your money” type websites advertised on highway billboards. They have little knowledge on how the unclaimed property becomes available for the claiming.

This “found” money is the result of a multiyear compliance process required by state statutes on abandoned and unclaimed property. It’s helpful to have an understanding of basic definitions and abandoned property compliance rules and regulations.

What is unclaimed property?

Unclaimed property is tangible or intangible property that has been abandoned, lost or otherwise lacked owner contact for a specified period of time. States enacted laws in the 1950s requiring companies to review their books and records and remit identified unclaimed property. These laws appoint state treasurers and administrators as the new custodians of unclaimed property until the true owners eventually claim it.

Each state provides a list of the various property types and the time periods when the property will be considered unclaimed and reportable. Most states’ basic unclaimed property types to be remitted include the following:

• Bank account funds
• Uncashed vendor/payroll checks
• Customer credits/refunds
• Virtual currency
• Gift card balances
• Life insurance policies
• Security deposits
• Safety deposit boxes

By law, unclaimed property is reportable once it reaches the dormancy period. That period covers the time that the property has been aged without owner contact, typically one to five years. This allows companies enough time to continue to resolve credit issues and other outstanding matters on their own before escheating.

How do you report unclaimed property?

You can report unclaimed property by following state-specific escheatment rules and submitting annual reports.

Here are definitions of common terms used within the unclaimed property process:

• Escheat: A government’s right to take ownership of unclaimed property. To escheat is to report property. This concept also applies to escheat real estate, where abandoned real estate assets may revert to the state under certain conditions.
• Holder: Any person or organization in possession of property that is subject to the state's unclaimed property laws that belongs to another person or business.
• Holders are required to escheat (report) unclaimed property pursuant to the jurisdictional priority rules established by the U.S. Supreme Court’s 1965 decision Texas v. New Jersey.
• First priority rule: Property is reported to the state of the owner’s last known address, as shown on companies’ books and records.
• Second priority rule: If the owner’s name or address is unknown, the property is reportable to the company’s state of incorporation.

Escheatment by state

Each state and U.S. territory has its own reporting, or escheatment, requirements, which can be difficult to navigate if you are holding unclaimed property addressable in multiple states.

In general, most states require an annual report due in the fall (October 31-November 1); however, there are approximately 10 states with due dates in the spring and summer: Connecticut, Delaware, Florida, Guam, Illinois (nonfinancial institutions), Michigan, New York, Pennsylvania, Texas and Vermont.

To further add to the difficulty, California and Puerto Rico require a preliminary report due in the fall and a final report due in the summer. It’s important to be mindful of the due dates for your applicable reporting states.

How do you complete unclaimed property reporting forms?

To report unclaimed property, you must follow state-specific instructions for forms, formatting and submission methods. Many states now offer secure online filing options to simplify compliance.

Depending on the state, once compliance has been established, the state may require the holder to continue to file a negative report ($0) for subsequent years. Other states only require a filing if unclaimed property needs to be reported. If your company chooses to file the paper form, make sure you check for the notary requirement.

Dormancy periods by state

Dormancy periods for unclaimed property vary by state and by property type, which can be very confusing when dealing with multiple states:

• Payroll property: In general, most states require uncashed payroll items to be aged only one year before they are to be escheated. Payroll property may be minimal for most companies due to the shift to direct deposit and the use of third-party administrators like ADP.
• Other property types: property types, such as outstanding vendor checks and customer credits, should be aged three or five years before they are required to be escheated, depending on the state.
• Due dates: All states with fall due dates have a fiscal year ending date of June 30, and most states with spring due dates have a calendar year ending date of December 31.

Due diligence notifications

Due diligence notifications are a preliminary step in the compliance process required by all states. Due diligence letters are mailed to owners at their last known address prior to the time of escheatment (typically 60-180 days).

The purpose of due diligence letters is to unite owners with their unclaimed property by providing them with a chance to reclaim the property before it ultimately gets reported to the states. Certain states, like Texas, have recently revised their regulations to move towards electronic notifications (via email), but not all states are in a hurry to make such changes.

Holders can provide the owners with an option to deny the funds if they believe the funds are not owed. Most states provide a minimum threshold for holders to alleviate the administrative burden associated with sending notices for small dollar amounts. Most thresholds are typically between $25 to $50. However, Texas requires letters for property amounts of $250 or more. States like Ohio and New York require certified letters if the property is over $1,000. Such differences are a reminder to review the due diligence requirements for each state in which you are reporting.

Unclaimed property exemptions

Exemptions and deductions should also be considered before escheating unclaimed property to the state. Certain states provide holders with a business-to-business exemption for specific property types as a way of maintaining company and customer/vendor relationships. Virginia offers a business exemption for the full amount of all credit balances and outstanding checks payable to a business association. Florida’s unclaimed property statute exempts credit balances, customer overpayments, deposits and refunds payable to a person or a business for less than $10.

On the other hand, exemptions and deductions do not have to be taken, as many organizations believe it would be easier just to remit the unclaimed property than to have to manage it.

Because the rules and regulations regarding compliance vary from state to state, unclaimed property organizations and their advocates actively lobby state administrators to revise laws to make them more uniform across the nation.

The Revised Uniform Unclaimed Property Act (RUUPA) was introduced in 2016 by the Uniform Law Commission as a guide for states to use when amending laws. Many states have already enacted some form of RUUPA.

How Wipfli can help

Wipfli professionals understand the nuances of each state’s unclaimed property compliance requirements and can assist your organization in avoiding costly penalties. Learn how we help our clients implement and manage tax exposure solutions.

Read more:

• Economic Nexus Reporting Requirements Reference Table
• The Supreme Court’s MoneyGram decision: A landmark ruling for unclaimed property
• Update your policies on cryptocurrency as unclaimed property