Understanding Unclaimed Property

Unclaimed property has become a topic of increased discussion in recent years, especially as states conduct unclaimed property audits. Examples include:

As a business owner, it’s important to be aware of unclaimed property and the role your business plays, as well as how unclaimed property can impact your financial statements and cause reporting issues.

Let’s start at the beginning.

Unclaimed property is an unclaimed financial asset your company owes to another business or individual. This can include uncashed checks, inactive savings accounts, life insurance proceeds, customer overpayments and unused gift certificates.

Unclaimed property happens when a debt remains outstanding for a specific period of time. Typically this is one year or more, as specified by state statute.

For example, your organization issues a pay check to its employee. One of those employees never cashes that check. The paycheck has now become unclaimed property.

So what am I supposed to do?

Here’s the short answer: Give the asset back or turn it over to the state.

In the above example, you should reissue the check if you can locate the employee.

There are a few steps you need to take in order to properly deal with unclaimed property:

  1. Identify the dormant accounts
  2. Notify the property owners
  3. Remit the asset to the property owners or to the state

Identify the dormant accounts

The first step is to determine if you are a holder (company in possession of an asset that belongs to someone else). The best way to determine this is by setting up processes and procedures that allow you to identify where unclaimed property exists.

Some of the procedures include:

  • Follow up on outstanding checks and credits after six months
  • Require all transactions in and out of accounts have to go through review and approval
  • If you’re thinking about acquiring a company, make sure you research and are aware of potential unclaimed property exposure
  • Keep good records, including name, address, taxpayer identification number, etc.

Notify the property owners

The next step to take as the holder is to locate the property’s rightful owner. This is a process known as due diligence.

After this period of due diligence, the holder has to submit a report to the state, listing who you weren’t able to contact, as well as payment for those outstanding accounts.

Remit the asset

At this point, either the asset is turned over to the property owner, or it gets turned over to the state (known as escheatment). Once it’s turned over to the state, they now have responsibility for it. In other words, they hold it so it’s available to the recipient at a later time, should they come looking for it. If no one comes for it, the state keeps the unclaimed property.

As a reminder, unclaimed paychecks are considered unclaimed property and subject to escheatment. If you have an unclaimed paycheck, the unclaimed property laws of the state where the employee last worked apply.

What happens if I don’t do these things?

States have been increasing enforcement efforts. Plus, you can be audited in relation to unclaimed property. The states even have unclaimed property examiners that come in to assess unclaimed property exposure in businesses.

Just to make things more fun, there’s no statute of limitations, meaning the state agencies can come knocking at any time.

Any other tips?

  • Research the laws in your state and know the particulars of unclaimed property reporting by state.
  • Set up policies and procedures to ensure you have good records and are tracking potential unclaimed property concerns.
  • If you’re confused or just need extra help, contact your CPA or business advisor.




What is Unclaimed Property?

Unclaimed Property? What’s that you say? I have no idea what you’re even talking about!

Don’t you worry, it’s not as scary as it sounds, but it can cause some headaches and have some pretty devastating (and expensive) consequences if not handled correctly. And that’s why we’re here.

So what is Unclaimed Property? Simply put, it’s a dormant or unclaimed financial asset that your business owes to another business or individual. A lot of times these include un-cashed checks, inactive savings accounts, life insurance proceeds, customer overpayments and even unused gift certificates. Easy enough, right?

Now, what do you need to do with these assets? Here’s the short answer: Give them back or turn them over to the state.

Make sense? Well now let’s talk about the longer answer (you knew it was coming):

Why would these things go unclaimed or inactive?

There are a number of reasons. Maybe the owner forgot about them or is deceased. Maybe they are ill and unable to keep up with their finances. The company may no longer be in business, sold, or changed their name. Or maybe they simply don’t know about the asset or it is too small for them to even take the time to claim it.

Fair enough. So let’s say I have some of these assets. What do I do now?

Ah, now we’re getting into the good stuff. Let’s start out with some of the basic terminology you need to know.

  • Holder – This is the company in possession of the assets that belong to someone else. This is you.
  • Dormancy Period – The amount of time an asset must be outstanding before it has to be reported to the state.
  • Escheatment – I know what you’re going to say. You’ve never “escheated” on your taxes in your life. (Bad pun, we know. But come on, it is kind of funny). This one’s actually pretty easy. It’s the act of turning the property over to the state. Once you do this, they now have the responsibility for it. But before that…..
  • Due Diligence – This is the act of making one final attempt to locate the property owner.

After you have these down it’s a simple three step process.

  1.  Identify the dormant accounts
  2. Notify the property owners (due diligence)
  3. Remit to the property owners or the state (escheatment)

Sounds easy. So why is this so important?

One of the big reasons is to protect consumers. This system is supposed to create a centralized location where businesses can report and remit the property, and the owners can search for and claim these funds.

So I might have some of these funds out there that somebody owes me?

Maybe. Check out www.missingmoney.com. Maybe you have a few bucks left in the checking account you opened up in college.

Earlier you mentioned devastating and potentially expensive consequences for not following these rules.

Alright I’m not trying to scare you, but there can be some pretty bad consequences if you’re not in compliance. And, frankly, states are increasing enforcement efforts. Also, you can be audited in relation to unclaimed property for things like your taxes. Plus, there’s no statute of limitation, meaning the IRS can come knocking at any time.

Think we’re joking? There’s a case currently in litigation where a mere $147.30 of unclaimed property found by an auditor turned into an extrapolated assessment of nearly $2 million!

Ok. So I have to report everything to the state right now?

Not so fast. You don’t have to report everything right now, but you at least need to start thinking about it.

There are a lot of unique questions surrounding unclaimed property:

  • What types of property do I have that may be subject to these rules?
  • What is the value that should be reported?
  • To what State should the property be reported to?
  • How do I go about tracking down the property owner?
  • Is the account dormant or not?
  • How long after the account is dormant do I have to report it?

Different states have different rules for reporting, and there are strict timelines to follow. This is where you may want to get an expert involved. They will help you navigate the process and ease the compliance headaches.