California adds unclaimed property to its income tax return

The California Franchise Tax Board (FTB) has added an unclaimed property reporting questionnaire to certain business tax returns. After the passing of Assembly Bill 466 on July 16, 2021, the FTB is allowed to share the filer’s answers to these questions with the state controller’s office, which will use this information to increase audits of potential holders of unclaimed property. Here, we share everything you need to know about this update.

Data sharing

Assembly Bill 466 will lead to heightened reporting compliance for unclaimed property by amending California’s income tax disclosure provision under section 19554, which permits the FTB to provide information to the state controller’s office. Starting with 2021 returns, the FTB may now share the following information with the controller:

• The taxpayer’s entity status and the date that the FTB last updated the taxpayer’s entity status
• The taxpayer’s revenue range
• Whether the taxpayer previously filed an unclaimed property report with the controller, and if applicable, both of the following:

1. The date filed of the taxpayer’s last report
2. The amount remitted on the taxpayer’s last report

After the enactment of Assembly Bill 466, the FTB worked with the controller’s office to compile a list of questions to include on business tax returns of corporations, partnerships and LLCs that could increase awareness of, and compliance with, the unclaimed property reporting requirements. The questions include the following:

1. Has the business entity previously filed an unclaimed property Holder Remit Report with the State Controller’s Office? [Yes/No]
2. If “Yes,” when was the last report filed?
3. What was the amount last remitted?

The controller’s office will then use this information to increase unclaimed property audits of business entities, expand unclaimed property reporting compliance and raise revenue through penalties and interest.

Penalties

California has steep penalty and interest provisions for late unclaimed property reports. Non-compliant businesses face up to a $10,000 penalty per late report, $5,000 for failing to deliver escheatable property and 12% interest based on the amount of property subject to escheatment.  Additionally, the interest charge can surpass the actual reportable property in some cases.