Why Dealing with Unclaimed Property is Important
Have these situations ever happened to you?
- An employee quits without picking up their final paycheck. You call the last known phone number, but it’s been disconnected, and when you send the paycheck to the employee’s last known street address, it’s returned.
-
One of your customers has a credit balance on their account and you can’t locate them to refund it.
These are examples of unclaimed property, and it’s tempting to say, “Well, I did everything I could!” But that’s not true. Business owners have a legal obligation to maintain accounting records for unclaimed property and – if the rightful owner can’t be located – to turn the unclaimed assets over to the appropriate state for disposition.
Examples of unclaimed property include abandoned property, annuities, insurance payments, security deposits, gift cards or certificates, and payroll checks – anything of value. Even if you’ve sold your business, you’re still responsible for any unclaimed property incurred until it’s been returned to the owner or remitted to the state (also known as “escheatment”).
State laws vary on the dormancy period, i.e., how long property has been unclaimed, but it’s typically at least a year. If you fail to make an annual report, states assess penalties and significant interest approaching 20% per year. This is an area where states are becoming increasingly aggressive in seeking revenue because there are so many businesses that ignore this important requirement. Therefore, audits by state taxing authorities are prevalent and can go back into your past records - even up to 10 years ago!
From time to time, states offer voluntary disclosure agreements that provide amnesty from interest and penalties . . . but only if you enter into one before you get audited.
Most states have a November 1 due date for unclaimed property reporting, and that’s just a few months away. So now is the time to gather those records and contact those lost owners. To find your state’s reporting requirements, click here.
And if you’d like some help with this reporting, our State and Local Tax (SALT) team is ready to help you. Contact Brandon Mills, our Mize SALT Manager, at bmills@mizecpas.co for more information.
|