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