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States Increasingly Audit for Unclaimed Property

February.7.2009

Because of the political hurdles typically constraining states from raising taxes, many have turned to raising revenues via laws already on the books. While audit fears generally cause companies to comply with other tax laws, many are unaware of their business’s obligations regarding unclaimed property, also referred to as “abandoned property”.

Many states in the past selectively enforced such laws, concentrating on financial institutions where abandoned accounts, safety deposit boxes, and uncashed dividend checks produced significant bangs for their audit bucks. Increasingly; however, states have turned to other sources, such as hospitals, and have increased enforcement against companies with large or transient payrolls that may fail to report uncashed payroll checks.

Unclaimed property laws typically include as subject property: bank accounts, safe deposit box contents, wages, insurance benefits, security deposits, fiduciary and escrow funds, stock dividends, undistributed stock certificates, and credits in customer accounts receivables. Depending upon your state, abandoned property may include gift certificates or purchase price rebates. The breadth of property subject to abandoned property laws will certainly increase. For instance, many states have approved or pending legislation requiring reporting of unclaimed gift cards.

States generally require you to report and remit abandoned property if it goes unclaimed for more than either three or five years. Many states moved to a three-year statute to increase the reported amounts. The states offer varying factors evidencing an abandonment, but it generally includes inactivity on an account or an inability to locate an owner.

To ease reporting burdens, many states do not require businesses to contact property owner prior to remitting property to the state or to provide the state with the property owner’s name or contact information, if the property value does not exceed a threshold amount. Coincidently, the property owner has no way to know when the state is holding their property or of their right to claim the property.

Under most circumstances, the holder/reporting business will have immunity from property owner claims if they remit the property to the state. Businesses may have reporting requirements for several states.  Generally, a company reports property to the owner’s state based on the owner’s last known address. But conflicting state laws can complicate even this seemingly simple decision.

If your business wishes to come into compliance, states are often provide a “voluntary disclosure” process similar to that allowed for other taxes. A tax attorney familiar with voluntary disclosures should be able to negotiate a settlement allowing the business to come into compliance with reduced or eliminated penalties and requiring the business to only report property “abandoned” within a limited period of time. If your business is not compliant, a costly and time-consuming state unclaimed property audit is increasingly becoming a possibility.

For further information, please contact Jeff Rogyom at (410)929-4578.

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