The Unclaimed Property Return: An Often Overlooked but Important Filing

By Merrill Barter February 23, 2014

What is unclaimed property? Why is it important for a business to understand the reporting requirements?

Basically, unclaimed or abandoned property is money and other types of property for which the owner has not made a claim, or cannot be identified or found, after a specified period of time known as the dormancy period. Once the dormancy period has expired, unclaimed property must be remitted (escheated) to the state. Some examples of unclaimed property are:

• Uncashed vendor checks
• Credit memos issued to customers that were not utilized
• Overpayments received from customers
• Payments received from customers for services that were never delivered
• Unclaimed wages
• Unredeemed gift cards
• Excess co-payments received by a hospital/healthcare provider from a patient
• Unclaimed bank deposit accounts
• The contents of a safe deposit box

If property held by a business (the Holder) has reached the end of its dormancy period, the Holder must make efforts to contact the owner at his or her last known address. If no response is received from the owner, the address of the owner is unknown, or the owner of the asset is unknown, then the property must be remitted to the state. The state then holds the assets (often reducing noncash assets to cash via auction), and owners can obtain their property later directly from the state.

Some issues faced by businesses related to identifying and reporting unclaimed property include:

• Determining what property is subject to unclaimed property rules. Some states, such as Maine, New Hampshire and New York treat uncashed vendor checks and other business transactions as escheatable. Other states such as Massachusetts and Ohio have exemptions for unclaimed amounts resulting from business to business transactions.
• Identifying when the property becomes “dormant.” The states apply varying dormancy periods to the same types of property. For example, the dormancy period for unclaimed wages is one year in Maine and New Hampshire, and three years in Massachusetts and New York.
• To what state must unclaimed funds be remitted? Typically, unclaimed property must be remitted to the state of the owner’s last known address. But what if only an incomplete address is known? Is this sufficient to determine to which state the property must be remitted? Or should the property be submitted to the business’s state of domicile?
• A business with operations and customers in multiple states may not have the resources to keep track of the unclaimed property, differing dormancy periods, and notification and filing rules for all of the states.

The collection of unclaimed property is a significant financial resource for the states. As an example, the State of Maine had $191.1 million of unclaimed funds on hand as of June 30, 2013. In the year ended June 30, 2013 Maine received $21.1 million and paid out claims worth $16.3 million. For this reason, the states are actively pursuing abandoned property through audits, often using 3rd party audit firms working on behalf of multiple states.

The failure to submit unclaimed property can expose a business to hefty penalties and interest. Also, the look-back periods can be significantly longer than those for taxes, further increasing a business’s financial exposure.

If a business has not submitted the required filings and payments in previous years, there are options available. Many states offer formal or informal voluntary disclosure programs, which enable a business to submit past due funds without the imposition of penalties. Similar to income and sales taxes, the states periodically offer amnesty programs.

Unclaimed property is a complex issue, with rules that can vary significantly from state to state. Failure to pay attention to and comply with the states’ unclaimed property laws can be an expensive mistake. If you have any questions, please contact your BNN advisor or Merrill Barter at 1-800-244-7444.