Keane's Unclaimed Property Blog

CA Increasing Unclaimed Property Compliance

The Legislative Analyst’s Office (LAO), published “Increasing Compliance with Unclaimed Property Law” on March 15, 2019.1 This report brings to light the lack of holders’ compliance with California unclaimed property law. Per the California State Controller’s Office (SCO), holder compliance is only at approximately 2%. “There are two reasons for this: (1) they are unaware of the law or (2) they are willfully noncompliant, largely to avoid the high interest penalty (12 percent annually) associated with failing to properly report.”1

Like many states facing similar compliance issues, the primary means of increasing compliance is through outreach and audits. California’s Governor has requested $1.6 million to continue and increase unclaimed property audits. Even with the increase in California unclaimed property audits, the state will only be able to complete fewer than 30 audits a year, which is minimal in comparison to the approximately 900,000 businesses in California.

The LAO recommends two other options to increase holder compliance:

  1. Amend the tax law to include a question or set of questions that businesses would be required to answer about unclaimed property to increase holder awareness of the unclaimed property law. This would be for information purposes only and would not have any tax consequences for the business.
  2. Provide a one-time amnesty for noncompliant holders who voluntary report past due property thus temporarily waiving the 12% interest penalty.

The LAO suggests that the Legislature consider either option, but stresses that increasing holder compliance would be best achieved if both measures were employed.

While the number of active businesses in California is rising, the holder compliance rate for unclaimed property is falling and the state of California plans to take measures to increase unclaimed property compliance.

No matter what avenue California chooses, holders would be wise to closely monitor the situation for increased audit enforcement and/or a window for amnesty.



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