One of the biggest fears and concerns for holders is the assessment of penalties and interest for unclaimed property. States may impose unclaimed property fines and penalties for late reports, inaccurate reports, or for reports filed in the improper or incorrect format.
These penalty and interest assessments are often the result of a third-party contingent fee audit conducted on behalf of one or more states. As auditors uncover property that was due to be reported and escheated in previous cycles, the state(s) have the statutory authority to assess additional penalties and interest.
While almost all jurisdictions have some form of penalties or interest assessment for late filings, below is a small sampling of specific states that automatically assess penalties and interest.
If your particular state is not listed and you are concerned your company is at risk of unclaimed property fines and penalties, we encourage you to contact us for a complimentary consultation.
Delaware Unclaimed Property Penalties and Interest
Delaware, the state with the greatest impact on unclaimed property, has announced that it will systematically assess penalties when its systems allow for that functionality. Interest for late reports will be charged at 0.5% per each month the report is late, not to exceed 50% of the value of the amount to be paid.
Delaware unclaimed property penalties are the lesser of 5% of the amount due plus an additional 5% for each month (not to exceed 50% of the value), or a civil penalty of $100 per day the report is withheld but not more than $5,000.
Holders that enroll in and complete the Delaware Voluntary Disclosure Agreement program operated by the DE Secretary of State can receive a full waiver of penalties and interest on outstanding unpaid amounts.
California Penalties and Interest for Unclaimed Property
By law, California will automatically assess interest on any property reported after the date it was required to be reported. The interest rate for California unclaimed property penalties is calculated at 12% per annum starting from the date the property was originally due. California unclaimed property interest assessments can be significant, with the amount of interest assessed potentially far exceeding the value of the property.
Texas Unclaimed Property Penalties and Interest
Holders who fail to meet Texas escheat reporting deadlines shall pay interest at an annual rate of 10 percent. The interest is assessed on the property from the date the property should have been paid or delivered until the date the property is actually paid or delivered.
Additionally, late-filing holders are assessed a penalty equal to 5% of the value of the property. If a holder fails to pay or deliver property before the 31st day after the date the property is due, an additional penalty equal to 5% of the value of the property due is imposed.
Nevada Unclaimed Property Fines and Penalties
The Silver State has one of the highest annual interest rates for unclaimed property at 18% per year. The interest assessment is coupled with a $200 daily penalty of, capped at $5,000.
Requesting a Waiver of Unclaimed Property Penalties and Interest
Holders may request a waiver of penalties and interest from Nevada by submitting a written request, including evidence that the holder acted in good faith.
Many states have similar programs and will work in good faith with the holder so long as the company does not have a lengthy history of late filing, and the ratio of penalty to property is logical – meaning states are unlikely to impose a $5,000 penalty for a $5 check being reported one-month date. However, Keane strongly recommends that all property is reported and remitted to the appropriate jurisdiction in advance of the deadlines to eliminate the risk of fines and penalties.
Montana Escheat Reporting Fines and Penalties
Failing to file on time in Montana will result in a 12% per year interest assessment, plus a $100 penalty for each day the report is late, with a maximum penalty of $2,500. The penalty for willful failure to deliver or report property is a steep $1,000 daily penalty, capped at $25,000, in addition to 25% of the value of property not reported.
Washington State Penalties for Late Unclaimed Property Reports
Washington State is expected to implement a new process for assessing interest on late reports this year. Past-due property will be subject to an interest assessment based on the Federal short-term rate, plus 2%.
The penalty for past due property will be 10% of the amount unpaid and the value of the property.
Avoiding Unclaimed Property Fines and Penalties
Delaware, and many other states, offers a voluntary disclosure agreement program or other voluntary compliance initiative that allows holders to come forward and report past-due property. These programs often include a complete waiver or reduced penalties and interest.
Voluntary Disclosure Agreements vary from state to state. Some states, such as Delaware, have very formal and rigorous requirements that often necessitate the use of an unclaimed property holder advocate such as Keane. Other states operate much more informal voluntary compliance initiatives. In either structure, we advise consulting with internal or external counsel and a holder advocate to explore compliance opportunities in any necessary jurisdictions.