If you are the one tasked with filing unclaimed property reports for your company, you may be looking for the easiest way to complete this task. For some, reciprocal filing looks like the “one and done” option – until you look a little closer. One misconception holders of unclaimed property have is filing reciprocally will help them cover all of their bases by reporting to all states at the same time. Unfortunately, that is not what actually happens when holders file reciprocally. When holders choose to report all of their unclaimed property to a single state, regardless of the owner’s last known address, several compliance issues can arise.
First, in order to be compliant, holders must file their unclaimed property reports to the state of the owners last known address within the reporting timeframe, and each state may have different due dates. If a holder reports all of their unclaimed property to one state office, but has some property that should be reported to another, records might be late by the time the first state processes the properties and sends them on to the second state. On the other hand, the records may already be late if the holder is using one state’s reporting date, and another’s due date was months before.
Second, different states may require different dormancy periods for reporting. If you are filing to a state that has a three or five-year dormancy but one of the subsequent states you are filing to only has a one-year dormancy, the shorter dormancy period properties will be late. When you consider that different states frequently have different dormancy periods for different property types, the likelihood of this type of compliance issue is high.
Third, filing reciprocally means that you have completely abandoned the reporting of your unclaimed property to the treasury department of the single state in which the last known address of the owner resides. There is no tracking number for your unclaimed property report – you will have no idea when (or if) the initial state you filed to actually sent the other states’ reports forward. You will have no audit trail, no submission number for the subsequent states, and if you are audited, you will not have compliance evidence to back you up for the second and tertiary states that you intended to file to.
Compliance issues are created when holders try to file reciprocally, but worse than that- reciprocal filing is not allowed at all by some states, and may actually flag your company for an audit. As revenue gained through unclaimed property continues to buffer state’s budgets, seeking out companies that are not in compliance to obtain fees and penalties from is becoming more and more prevalent.
Reciprocal filing may look like an easy way out of unclaimed property reporting, but it may only serve as an easy way into a compliance nightmare.
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