Article

Unclaimed property reporting for newly acquired companies

July 8, 2025 · Authored by Cathleen Bucholtz, Matthew Chenowth

The increase in merger and acquisition (M&A) activity in the past few years has increased the risk that an acquisitive company may have inadvertently inherited unclaimed property liabilities along with an acquired entity. Whether or not an acquiring company was able to complete a thorough review of a target’s unclaimed property liabilities during the due diligence process, the new parent company is now responsible for ensuring that the acquired entity remains in or gets into compliance with state unclaimed property reporting requirements.

The fall unclaimed property filing season is around the corner and now is a good time for companies with an acquisition history to review the records of their acquisitions and determine the best method and timing to include newly acquired entities into their existing unclaimed property compliance process.

What is unclaimed property?

Unclaimed property is usually defined as any tangible or intangible property that is held, issued or owed by a company, known as the “holder,” in the normal course of business that has remained unclaimed for a specific period of time (the dormancy period), by the owner of the property. All U.S. states, several U.S. territories and certain Canadian provinces have established unclaimed property reporting requirements.

Typical examples of unclaimed property include uncashed payroll, vendor and dividend checks; accounts receivable net credit balances; unused stored value cards; and royalty suspense balances. Even the underlying stock of a company can be deemed unclaimed property if it looks like the owner has abandoned the shares (e.g., undeliverable mail, failure to exchange or redeem shares after a merger or acquisition). In addition, a company’s unclaimed property liability is not limited to balances reflected on its current books and records but may also include items that were previously voided, written off, and/or taken into income in error (e.g., uncashed checks, small dollar credit balances).

Once the dormancy period has passed without a holder receiving any contact from the owner, it becomes subject to escheat and the company may have an obligation to report the property to the appropriate jurisdiction as established by the Supreme Court: (1) the first priority rule provides that unclaimed property should be reported to the state of the owner’s last known address, as shown on the holder’s books and records; or (2) the second priority rule provides that if the apparent owner’s address is unknown, the last known address is in a foreign country, or if the last known address is in a state that does not provide for escheat of the type of property in question, then property should be reported to the holder’s state of domicile, typically the state of incorporation/formation.

Reviewing recent acquisitions for potential unclaimed property exposure

When assessing what unclaimed property liabilities may have been acquired along with an acquired entity, the starting point should be the terms of the acquisition. In general, stock acquisitions transfer all of the acquired entity’s assets and liabilities to the acquirer unless specific items are excluded from the agreement. While only specific assets and liabilities are acquired during an asset acquisition, sometimes hidden liabilities, such as unresolved accounts receivable credits, may unknowingly be acquired as part of a transaction.

Understanding an acquired entity’s past unclaimed property filing history, including its subsidiaries and prior acquisitions, is the first step to determine any related unclaimed property exposure. The acquired entity’s records should also be reviewed to determine if the amounts shown truly represent unclaimed property rather than an accounting error or an item that has already been resolved, and whether there are any applicable state unclaimed property reporting exemptions that can reduce its obligation. Written and/or informal policies on handling uncashed checks, credit balances, etc., should be identified and documented as these procedures may have an impact on potential unclaimed property exposure.

A careful review of the acquired entity’s historical records will facilitate an understanding of its reporting history, as well as whether there are any potential past due unclaimed property liabilities that need to be resolved. This allows the acquiring company to determine the best steps on how to proceed to ensure that the acquired entity is/was compliant with the states’ unclaimed property reporting requirements.

Reporting unclaimed property for recent acquisitions

Once the acquiring company understands the acquired entity’s potential unclaimed property history and liabilities, or determines that it needs further analysis, it can determine the best way to bring the newly acquired entity into its unclaimed property reporting process.

If the initial review has shown that the acquired entity has had a robust unclaimed property reporting history, and has no past due unclaimed property exposure, the acquirer can either include the acquired entity in the acquirer’s next consolidated report or continue to file separately. Depending upon the jurisdictions involved, if the acquired entity’s reporting history has been good, but nominal amounts of past due property have been identified, the acquirer may decide to file the past due property in a final report under the acquired entity’s name and FEIN, and later include the acquired entity in the acquirer’s future consolidated reports once the past due property has been reported.

If the acquired entity does not have a regular reporting history, or has significant unreported past due unclaimed property, the best step may be to conduct an in-depth unclaimed property diagnostic on the acquired entity to get a thorough understanding of any potential unclaimed property exposure, as well as the states to which the liabilities are owed. Once the amount of potential past-due property held by the acquired entity has been determined, the next step is to determine the best way to get the entity into compliance.

If material amounts of past due property due to one or more jurisdictions has been uncovered, the acquirer should determine how many of the jurisdictions offer formal voluntary disclosure agreement (VDA) programs. A VDA is a written agreement between a company and a state through which a company and the state agree settle prior unclaimed property liabilities. The benefit of a VDA is that most states will reduce or waive penalties and/or interest and reduce the look-back period for which property must be remitted. However, not all states offer VDA programs, and among those that do, the terms and conditions of a VDA can vary significantly. Careful research into a jurisdiction’s VDA program should be made prior to contacting the jurisdiction. If it is determined that the acquirer and/or acquired entity qualifies to enroll in a jurisdiction’s VDA program, consider contacting any such state as soon as practical – generally after the identification of the past due exposure to demonstrate good faith efforts are being made to comply with the jurisdiction’s unclaimed property laws.

For all jurisdictions that do not require a formal settlement, the company may begin the annual compliance process for the specific report year based on reporting deadlines for each jurisdiction. In some cases, a jurisdiction may waive interest and penalties if requested by the company – especially for first time filers. Once you have identified properties due to other jurisdictions not being reported through a formal settlement program, an acquiring company should file the annual compliance report for the acquired entity on the very next filing date. Keep in mind that there are 45 jurisdictions that have a fall (Oct. 31 or Nov. 1) reporting due date, eight with a spring (March 1 through May 31) reporting due date and three with a summer (June 15 through July 1) reporting due date.

About Baker Tilly

The Baker Tilly unclaimed property team has helped hundreds of organizations with their annual compliance, unclaimed property policies and procedures, voluntary disclosure programs, audit defense, exposure quantification and analysis, merger and acquisition due diligence, and gift card and stored value card consulting.

Companies wanting to learn more about the bringing acquired entities into the unclaimed property compliance process, new state laws that may impact this year’s reporting, or any other unclaimed property related questions should reach out to a member of the Baker Tilly unclaimed property management team. Also be sure to check out our newly updated State-by-State Reporting Guide.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.