We are seeing an increased interest by many state governments in the area of unclaimed property.
Companies are required to file unclaimed property reports at least annually. Unclaimed property includes bank accounts, wages, refunds, utility deposits and contents of safe deposit boxes.
For a dealership, the most common unclaimed property would be uncashed payroll or vendor checks, unclaimed “we owes,” or unclaimed customer deposits.
A “holder” is characterized as the business or person who is in possession of the property in question and has not been able to contact or locate the owner.
After a specified time period has passed — usually a year — for which there has been no contact between the owner and holder, owners have a legal duty to remit the unclaimed property to the particular jurisdiction.
The rationale for the reporting of unclaimed property to a particular jurisdiction is that, while there might not be an active holder when owners subsequently request their unclaimed property, requiring holders to transfer unclaimed property to the particular jurisdiction ensures that owners can locate and claim their property.
From the state's perspective, while unclaimed property belongs to the respective owners, most jurisdictions permit the interest and penalties generated from reportable unclaimed property to inure to the jurisdiction's general fund/treasury. One can see an incentive to enforce unclaimed property laws.
To this end, the area of unclaimed property is often characterized as a tax because of the administrative, procedural, and sustentative similarities to taxes.
Similar to most taxes, the statute of limitations does not commence to run until a taxpayer has filed their unclaimed property reports. Upon audit, jurisdictions may require companies to file unclaimed property reports from periods ranging anywhere from the prior six years to their inception.
Some companies may believe their potential unclaimed property liability is insignificant. But it can be significant if a government audit spans a number of years and interest and penalties pile up. For this reason, companies may wish to evaluate their unclaimed property reporting policy.
If companies are not in compliance with unclaimed property reporting obligations, two points merit discussion.
The first is that agents or companies who contact a jurisdiction seeking unclaimed property are invariably inviting the jurisdiction to confirm whether the claimant is in compliance with their unclaimed property reporting requirements.
So, a company executive who initially was excited that an Internet search revealed a jurisdiction was holding $719.32 in unclaimed property, may not be as enthused when they receive a notice requesting 10 years worth of unclaimed property returns, interest and penalties.
The second point concerns remedies available to companies who may not be in compliance.
Among the most beneficial remedies is requesting permission from a jurisdiction to participate in an amnesty program commonly known as a voluntary disclosure agreement program.
While each jurisdiction has its own terms and conditions, most will permit a company to anonymously come forward and participate provided it did not received a notice from the jurisdiction and previously filed unclaimed property reports/returns.
An amnesty program usually permits the company to conduct a self audit and report all unclaimed property due and owing for a specified period.
One of the main advantages of such a program does not pertain to exposure or refunds. Due to the proactive and self audit nature of the programs, companies often enjoy certain administrative synergies.
Those include a more expedient resolution of potential audit issues and more efficient utilization of resources in preparing and complying with potential unclaimed property concerns.
John A. Davis is a CPA with Dixon Hughes PLLC. He's at 404-575-8910 and [email protected].