In our 65+ years of providing unclaimed property compliance services, we have helped thousands of companies achieve and maintain compliance with complex state unclaimed property laws.
We have helped companies file unclaimed property reports for the first time and we have helped companies with long histories of compliance improve and optimize their annual reporting processes.
Regardless of their compliance history, we find that many companies operate under factually inaccurate assumptions. These unclaimed property myths or misconceptions cover everything from why the company has not been reporting, to why they report in a certain manner.
Below are some of the most interesting unclaimed property myths that Keane has heard during our 65+ years in business.
Unclaimed Property Reporting is Optional.
This is the biggest unclaimed property myth and it is an absolute falsehood. Filing annual unclaimed property reports is a requirement in all 55 reporting jurisdictions. As a refresher, the 55 jurisdictions include all 50 states, plus Washington D.C., Puerto Rico, the US Virgin Islands, Guam, and the Northern Mariana Islands. Several Canadian provinces also have unclaimed property laws on their books.
Each state establishes a cut-off date and deadline for when their unclaimed property reports are due. These due dates vary by state and often by industry. When businesses fail to meet these deadlines and file reports late, states have the statutory authority to assess penalties, fines, and interest. Interest assessments can be as high as 18% for past-due property and many states, such as California, have mandatory interest assessments.
Ultimately, states may choose to conduct an unclaimed property audit on companies to determine their level of compliance. Companies that receive an audit notice and go through the rigorous and costly process, quickly realize that unclaimed property reporting is not an optional practice.
You can pick and choose your level of compliance.
A business is required to file a report to all states where it has a reporting obligation. Even if you only have one unclaimed check due to a state, you must fulfill all necessary requirements and file a report.
Many companies believe they only need to comply with the laws of their state of incorporation and only file reports to that state. Because of this commonly held misconception, we have noticed more and more states join multi-state unclaimed property audits of companies not incorporated within their borders.
Another consequence of “selective compliance” is learning that voluntary disclosure agreements only protect you for liabilities in that particular state with the VDA. There is no one VDA program that absolves a holder of all past-due property, fines, and penalties in all states. As an example, completing the voluntary disclosure agreement program in Delaware does not provide a waiver of liabilities, penalties and interest for any other state. Those liabilities still exist and the states to which they are owed may initiate or join an audit.
I’m Reporting, ergo I’m in Compliance.
Another commonly held misconception is the belief that simply filing annual reports ensures compliance with each set of state unclaimed property laws.
Keane is often engaged to perform risk assessments for companies that claim to have been reporting consistently. In many cases, our risk assessments uncover that the only thing consistent is that they have been consistently reporting incorrectly.
Many companies unintentionally fail to report all applicable property types, make incorrect dormancy calculations, or even omit entire lines of business from their annual reports.
For example, many holders in the banking industry do a great job of tracking and reporting their deposit accounts and other property types specific to the industry, but overlook more common general ledger property types such as accounts payable, accounts receivable or payroll.
Holders must be mindful that they capture all property across all lines of business and throughout the organization to ensure compliance at an enterprise level.
You can “Set it and forget it.”
Just as many companies think they are compliant just because they file annual reports, many companies think they can put their unclaimed property responsibilities on autopilot by having implemented system controls and strong policies and procedures.
Having formal policies for managing unclaimed property is certainly a strong foundation for a compliance program, but it is not something you can “set and forget.” Unclaimed property laws change all the time. It takes constant maintenance, monitoring, and analysis to ensure you are following the letter of the law in all applicable jurisdictions.
Keane helps keep its clients up to date on unclaimed property legislation through our real-time alerts and our compliance portal, which houses a variety of state unclaimed property resources, dormancy tables, and a full legislative tracking database.
You can take unclaimed property into revenue.
We are flabbergasted every time a company tells us they have been taking outstanding liabilities into revenue that should have been reported as unclaimed property. Unclaimed property on your books is not an asset. Is it a liability owed to another person, business, or entity that, for some reason, remains outstanding.
Further, including “Void after 180 Days” at the bottom of a check does not protect or preclude the company from unclaimed property exposure. We have seen many examples of companies that operated under the false impression that including similar language on their checks meant the check was no longer considered due to the payee or no longer unclaimed.
The modern versions of state unclaimed property laws are custodial in nature, meaning the states step into the shoes of the owner until the owners are able to come forward to claim the property. Nowhere does it allow the entity with the liability (the holder) to take that property into income.
That being said, some property that is scheduled to be reported may be excused from escheatment. This may be because of a statutory exemption, technical exemption, accounting anomaly, or where consideration was not provided.
Reciprocal Reporting is Acceptable.
Reciprocal unclaimed property reporting is the practice of submitting one report and remitting all property to one state, and then relying on that state to sort out the appropriate payment and property to each state.
While this used to be a more commonly accepted practice, most states discourage reciprocal reporting, as it causes logistical headaches and often results in holders applying incorrect dormancy decisions and failing to comply with the state escheat laws in other states.
As a best practice, you should prepare a single report for every state to which you have an obligation.
Unclaimed Property is a Tax.
Unclaimed property looks like a tax because there is an annual filing requirement governed by state law. It also feels like a tax because compliance requires ongoing monitoring of changes in laws and regulations. For these reasons, the tax department is generally actively involved in – or may be responsible for – unclaimed property compliance.
The biggest difference between tax and unclaimed property is that nexus does not apply in the purview of unclaimed property compliance. There are also few to no statutes of limitations when it comes to unclaimed property. As noted above, property reported past its statutory due date can carry major financial implications.
You don’t have to report if you don’t owe anything.
This is a partial myth. In some states, if you do not owe them anything – you do not need to file a report. However, 23 states have negative reporting requirements for unclaimed property.
Negative reports for unclaimed property are reports that formally indicate that there you performed your annual unclaimed property compliance exercise and there is no property needing to be reported or remitted to that particular state for that particular cycle or year. Some states may only require negative reports for those holders incorporated in their state.
Be sure to check with your respective jurisdiction prior to each reporting cycle to see if negative reports are required.
Unclaimed Property Compliance Doesn’t Have to Be a Herculean Task
Because of unclaimed property myths like the ones above, many companies find it incredibly difficult to overcome years of reporting incorrectly. It often requires substantial remediation to clean up areas of exposure before establishing an effective program for ongoing compliance.
However, by understanding your existing gaps in compliance and taking measures to remedy those liabilities, holders can begin their own odyssey towards compliance. It takes effort and should include the input of all stakeholders that generate or are impacted by unclaimed property – but those efforts will pay dividends in the long run.
 A Sisyphean task refers to a task that seems endless, ineffective, or hopeless. In Greek mythology, Sisyphus was the cunning king of Corinth who was punished in Hades by having repeatedly to roll a huge stone up a hill only to have it roll down again as soon as he had brought it to the summit.