Unclaimed property – do you have it? Beware!

By Mary Reiser | Sep 02, 2014

While no state would call unclaimed property a tax, states are using it more to generate revenue. Do you know what unclaimed property is, and do you have it?

Unclaimed property often consists of nebulous items lost in the accounting records of businesses and organizations until a state agent performs an audit, and no industry escapes the threat of unclaimed property. From the state's perspective, every organization likely holds some type of unclaimed property.

What Is Unclaimed Property?

Unclaimed property takes many forms that are common in everyday business:

  • Outstanding payroll or commission checks
  • Outstanding checks or unclaimed accounts payable to vendors
  • Credit balances in accounts receivable
  • Outstanding refund or rebate checks to customers
  • Unredeemed gift cards or gift certificates
  • Unapplied customer deposits
  • Outstanding dividend checks
  • Outstanding cashier’s checks or money orders
  • Abandoned bank accounts

What Makes It Unclaimed?

In general, property becomes unclaimed when the owner (the person or entity with the right to the property) has not taken action on the property for a specified period of time. States refer to this period of abandonment as dormancy. Depending on the state and type of property, dormancy can vary from one to 15 years. After the dormancy period, the holder of the property—the person or entity with the fixed obligation to the owner—has certain notice and reporting responsibilities.

States require holders of unclaimed property to contact the owner of the property at the last known address on the holder’s books. When owners don’t reply, holders must determine which state has jurisdiction to receive the property. In many instances, the owner and holder may be domiciled in different states. Sometimes, the records of the holder can be unclear as to where the owner is even located.

Despite the obstacles, holders are required to report the property to the appropriate state.

What Is the Risk?

As initially conceived, the general principle of unclaimed property laws was that states act as custodians of property until the property could be reunited with its owner. Unfortunately, aggressive states turn unclaimed property into a cash windfall. For example, some states use statistical sampling methods to determine amounts of unclaimed property despite their inability to identify any owner. Many also impose inequitable penalties for failure to report or deliver unclaimed property. Penalties frequently are computed as a dollar amount anywhere from $100 to $500 per day, without regard to property value, and some states allow these penalties to accumulate without limitation.

Businesses and organizations need to be aware of the reporting and delivery requirements for unclaimed property. Awareness can help protect you from exposure to state scrutiny and penalties for noncompliance. You also may be able to take advantage of voluntary disclosure programs to mitigate your exposure. These programs generally provide the opportunity for penalty and/or interest abatement.

If you have any questions regarding unclaimed property, contact your tax advisor.

Mary Reiser is a CPA, Senior Managing Consultant, at BKD. Contact her at mreiser@bkd.com


This information was written by qualified, experienced BKD professionals, but applying specific information to your situation requires careful consideration of facts and circumstances. Consult your BKD advisor before acting on any matter covered here.

Article reprinted with permission from BKD, LLP, bkd.com. All rights reserved.