Unclaimed property audits.

• Author: Hall, Noel E., Jr.
• Position: State escheat law

Editor's note: Ms. Boucher chairs the AICPA Tax Division's State and Local Taxation Committee.

If you would like more information about this article, contact Mr. Hall at (213) 614-6648.

Ten years ago, the hottest area in the state and local arena was sales and use taxes. As tax practitioners began to develop planning opportunities within the then existing laws, states also became more sophisticated. As a result, sales and use tax planning has become a mature and developed area of practice. Today, the laws involving unclaimed property (escheat) have become the new hot area in state and local planning. State unclaimed property laws apply to almost every type of property, whether real or personal, tangible or intangible. While the escheat laws were of concern primarily only to banks, insurance companies and brokerage firms at one time, today industries as diverse as entertainment, health care, retail/distribution, airlines, transportation and oil and gas can come under the scrutiny of states' unclaimed property administrators.

Escheat Laws

Today's escheat laws began as a way for the king to claim ownership of real property whose owner had died without heirs. Under today's typical escheat laws, the state "steps into the shoes" of the true owner and claims the same rights as the true owner, no more and no less. Although the state takes possession of property presumed abandoned on behalf of the owner, should the true owners be located or come forward to make a claim, the state is obligated to return the property to them.

The underlying policy is that, if the true owner cannot be found, unclaimed property should benefit the general public rather than the holder of the property. The states felt that allowing corporations, banks and other business enterprises to hold this property would lead to their undue enrichment at the expense of their customers and creditors.

Unclaimed Property

Dormant bank accounts, uncashed dividend checks, untendered shares and outstanding insurance drafts used to be the only property subject to the escheat laws. Today, gift certificates, payroll checks, electronic gift cards, customer credits and security deposits may also be affected (depending on the state). It was once the standard practice of industry to reverse (i.e., either to expense or income)stale checks, unredeemed gift certificates, customer credit balances, etc. Financial officers, controllers and corporate treasurers now find that these past practices are affecting today's bottom...