Full compliance when it comes to unclaimed property requirements can be difficult to determine. For many businesses, it isn’t until they are audited and fined that they find out they made a mistake.
Below are the most common mistakes businesses make when complying with unclaimed property requirements.
1. Reporting is mandatory
Reporting unclaimed property is not a courtesy, it’s the law. All companies in the U.S., Puerto Rico, U.S. Virgin Islands, Guam, Northern Mariana Islands and some Canadian provinces must file unclaimed property according to the requirements of those jurisdictions. However, there are a couple of universal rules which apply to all jurisdictions:
- Even if you only have one uncashed check, you must fulfill all necessary requirements and file a report
- Do not report property as unclaimed until the dormancy period has ended and the due date has arrived
Some U.S. states even require companies to file negative reports. Negative reports tell the state that your business did not have any unclaimed property to report.
2. Policies & procedures do not equal compliance
Having policies and procedures for unclaimed property compliance is a great start, but it’s not enough. Unclaimed property laws are constantly changing, which means that you need a system in place that notifies you immediately of these changes, as well as adjusts all of your existing unclaimed property in the same manner.
3. Reciprocal filing
The act of remitting all of your unclaimed property to one state, even if the property originated from another state, is called reciprocal filing. We do not recommend reciprocal filing and it’s not a good practice for your company. If one of your prior clients knew that you did everything in your power to return their unclaimed property, they would be more likely to do business with your company again in the future. When you file reciprocally, you are relying on another state to determine which state gets what payment. It’s much cleaner and client-friendly if you submit the unclaimed property to the state of the owner’s last known address. It’s the right thing to do and some states, like California, don’t allow reciprocal filing.
4. Reporting to multiple states
When reporting to multiple states, keep in mind that each state has its own:
- formatting requirements for the reports you submit
- and dormancy periods based on the property type, meaning one state could have a 3-year dormancy on a property type and another might have a 5-year dormancy on the same property type
Failing to understand all of the formatting requirements, property types and dormancy periods for each state drastically increases your risk of penalties.
5. Due diligence
All businesses are required to file unclaimed property reports to the state that matches the owner’s last known address. However, they are also required by law to conduct due diligence. Due diligence includes:
- Sending letters at the appropriate time in an attempt to locate the lost owner before the property was due to be reported.
- Tracking those due diligence letters with an audit trail that can be easily reviewed in case of an audit.
Attempting to manually manage all of the unclaimed property requirements and due dates for every state when they’re constantly changing is a massive burden and exposes your business to substantial financial risk.
Get in touch with a Sovos unclaimed property expert to learn more about managing your unclaimed property compliance processes.