Spring Unclaimed Property Reporting Overview
To help you prepare for the 2018 spring reporting season, we’ve put together a brief overview which covers the basics of unclaimed property that every company holding unclaimed property should review.
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Unclaimed Property Glossary
We will begin our overview with some terms common to the industry:
- Owner: The owner is the person or the entity to whom an obligation is owed.
- Holder: A holder is a company that has the obligation or the debt to the owner.
- Dormancy period: The length of time that a particular property type (such as wages or traveler’s checks) has to be open or uncashed before it is considered abandoned and is subject to unclaimed property laws.
- Cut-off date: This is the date at which the property has been dormant for long enough where it should be considered to be reported in the upcoming season. Although cut-off dates vary among jurisdictions, they are typically thought of as June 30th and December 31st. For instance, a property type in a jurisdiction where it has a 3 year dormancy period and a cut-off date of June 30th would have to be dormant for 3 years as of June 30th to be reportable in that year.
- Reporting deadline: These are the statutory deadlines that the states have established. Just like you might do your taxes on April 15th, so you need to file your unclaimed property reports on a deadline with the jurisdictions. Reporting deadlines vary among jurisdictions.
- Due diligence: These are notification requirements the try to reunite unclaimed property with its owner. Many jurisdictions will require that before you remit unclaimed property, you must make an effort to send a letter to the last known address on your books and records of the owner of the property. This letter should indicate that their property will soon be escheated to that particular state.
- Escheat: The actual act of reporting and remitting properties to the states.
Identifying Applicable Property Types
There are over 100 different property types that the states will expect corporations to review annually to determine if it needs to be escheated. Some of the top ones include:
- Accounts payable or vendor payments
- Account receivable credits
- Wages or payroll.
However, there are a tremendous number of unclaimed property types including a public company’s stocks, the dividends, and the underlying shares, as well as health and welfare plans. It is important to not forget to look at refunds, rebates, and various other benefit payments. Then there is a whole host of general ledger property types and for financial service institutions, a whole host of securities-related property.
Rules of Jurisdiction: Where Do You Report?
The Supreme Court has identified the rules about which jurisdiction’s laws unclaimed property holders need to follow. These are referred to as the Priority Rules and were determined in the case of Texas v. New Jersey in 1965.
The first rule is to report unclaimed property to the last known address on your books and records with a mailable address. For instance, if you have an address of an employee with a payroll check in Pennsylvania, Pennsylvania’s law takes priority. If you have an account payable check due to someone or a business in Arizona, then the property must be escheated to Arizona.
What if you have property with an unknown address? For instance, you may have gone through a systems conversion when you acquired a company, you acquired an AR balance with no supporting detail. Or perhaps your record retention policy is such that you don’t have this data. Such property typically defaults to the state of incorporation of the entity that has the obligation i.e. the holder that has that obligation.
For a foreign address property, priority also reverts to your (the holder’s) state of incorporation.
Filing a Report: Why Should You File an Unclaimed Property Report?
Holders need to file unclaimed property reports because it’s the law. Every state has a law that requires compliance. All companies have the obligation to self-identify the unclaimed property they have and remit that voluntarily, but it’s an area of compliance that has been typically overlooked by a lot of companies. In fact, the states estimate that still between 70% and 90% of all companies in the United States are not compliant, or not fully compliant.
Compliance is not triggered by nexus. You may have no offices, employees, or other presence in a reporting jurisdiction and still be required to file unclaimed or abandoned property reports there. It is triggered by the availability of records and the presumption that you have records with addresses in a particular jurisdiction.
Risks of Not Filing a Report
Companies who do not file reports run the risk of facing penalties and paying interest extrapolated and compounded. There’s also quite a bit of reputational risk at stake. It’s not unusual for a state to publish the names of companies they’ve audited and use the press to get companies to comply. The insurance industry is one in particular where their examinations were publicized.
In the last 10 years, there has been a tremendous amount of audit activity. It should also be noted that there is a significant amount of audit activity on the horizon, especially in the short term as Delaware is anticipated to resume its unclaimed property examinations.
Feeling Overwhelmed by Unclaimed Property Compliance?
Keeping up with unclaimed property compliance throughout the year can put a strain on internal company resources, especially when reporting in multiple jurisdictions. Keane’s fully outsourced compliance solution helps businesses of all shapes and sizes make sense of the complex escheat reporting cycle, simplifying it in the process. Contact us if you’d like to learn more about our services, or browse our additional educational resources.