Ten things to know about unclaimed property

Unless a company has been the subject of an unclaimed property audit, it is unlikely to be an area that gets much attention, and even the most seasoned tax professionals may not fully understand unclaimed property and how it may affect a business.

In the past few years unclaimed property audits have been on the increase as states and their third-party auditors look to increase compliance. For most companies that are unfamiliar with unclaimed property, these audits can be confusing and confounding. In addition, given the way the various state unclaimed property laws are structured, companies that do not have a strong unclaimed property compliance history may face the very real risk of a material potential exposure related to unreported unclaimed property.

For these reasons we have created a list of the key points that every company should know about unclaimed property:

1. Every company has unclaimed property.

All industries and companies generate items that can become unclaimed property if they remain unresolved for a period of time. The most common examples include uncashed payroll and accounts payable checks, accounts receivable credit balances, dividend payments and self-insured benefit plan claim payments. While companies used to write off these amounts to income once they became stale, they represent unclaimed property that may be due to a state. In an audit, prior transactions giving the appearance of unclaimed property may be scheduled as a potential liability.

2. Unclaimed property compliance is the law.

Companies have a statutory obligation to report and remit unclaimed property to all U.S. jurisdictions (50 states, the District of Columbia, U.S. Virgin Islands, Puerto Rico and Guam), and statutes of limitations are much longer than for taxes, and in some cases may not apply, especially for noncompliant companies.

3. Unclaimed property is not a tax.

Due to its reporting requirements and the risk of state audits, the unclaimed property function in most companies is in the tax department. However, because it is not a tax, there are no nexus requirements with unclaimed property. Therefore, companies may have unclaimed property reporting responsibilities and potential audit risk with every jurisdiction.

4. To which state is unclaimed property reportable?

Property is reportable to the state of last known address of the owner as shown on the company’s books and records. Whenever detailed owner address information cannot be located, it may create an unclaimed property liability reportable to the company’s state of domicile/incorporation – Delaware for many companies.