North America

How to Avoid 6 Common Unclaimed Property Myths

Sovos
January 17, 2023

This blog was last updated on January 18, 2023

Unclaimed property is often misunderstood. Despite their best intentions, we find that many companies operate under factually inaccurate assumptions that could put their business at risk. We’ve outlined some of the top myths and misconceptions around unclaimed property to help you stay compliant.

Unclaimed property reporting is optional

Filing unclaimed property is not an option. Filing annual unclaimed property reports is a requirement in all 55 reporting jurisdictions, which includes all 50 states, plus Washington D.C., Puerto Rico, the U.S. Virgin Islands, Guam and the Northern Mariana Islands. Additionally, several Canadian provinces also have unclaimed property requirements. Even if you only have one unclaimed check due to a payee in that state, you must fulfill all necessary requirements and file a report.

Unclaimed property is real estate

While it is true that some of the first known instances of unclaimed property had to do with land ownership, unclaimed property has nothing to do with real estate or abandoned buildings. Common examples of unclaimed property include dormant bank accounts, forgotten securities, proceeds from insurance policies, utility refunds or, most commonly, uncashed checks.

Unclaimed property is tax

Remember that unclaimed property is not a tax and shouldn’t be treated as such. For example, although the IRS has a seven-year retention period for documents, this does not apply to unclaimed property with many states requiring record retention for 10+ years. It is important that unclaimed property holders retain records for the required amount of time established by the states to demonstrate unclaimed property compliance in the event of an audit.

Uncashed checks and unused credit balances can be reversed to income

This is a huge (and frankly, very risky) misconception. At its core, even the “void after 180 days” language at the bottom of a check does not protect or preclude your organization from unclaimed property exposure. Failing to account for unclaimed property can lead to hefty fines and audits.

Unclaimed property only applies to uncashed checks

It is typical for many companies to unintentionally fail to report all applicable property types, make incorrect dormancy calculations or even omit entire lines of business from their annual reports. Proper identification of all potential unclaimed property exposures is complex and requires a full review of your business operations.

Filing one state report means you’re compliant in all states

Reporting all identified property to the state in which your business is headquartered or to the state of incorporation does not mean that you’re in compliance with every state. If you have unclaimed property addressed to payees in multiple states, that property should be reported directly to those states. Previously, states maintained reciprocal agreements with each other and would send property they received for other states over to the correct state. This is no longer the case for all states and assuming so could result in penalties and interest for your company.

Take Action

Have you been operating on one of these misconceptions? Contact a Sovos unclaimed property expert today to learn more.

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Author

Sovos

Sovos is a global provider of tax, compliance and trust solutions and services that enable businesses to navigate an increasingly regulated world with true confidence. Purpose-built for always-on compliance capabilities, our scalable IT-driven solutions meet the demands of an evolving and complex global regulatory landscape. Sovos’ cloud-based software platform provides an unparalleled level of integration with business applications and government compliance processes. More than 100,000 customers in 100+ countries – including half the Fortune 500 – trust Sovos for their compliance needs. Sovos annually processes more than three billion transactions across 19,000 global tax jurisdictions. Bolstered by a robust partner program more than 400 strong, Sovos brings to bear an unrivaled global network for companies across industries and geographies. Founded in 1979, Sovos has operations across the Americas and Europe, and is owned by Hg and TA Associates.
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