Unclaimed property compliance: a tax department responsibility?

• Author: Lane, Laura A.

The everyday functions of a company's operations result in the generation of legal obligations that can become "unclaimed property." With state budget deficits continuing to grow, companies should not count on unclaimed property compliance and related audits to go away anytime soon. Today, more and more businesses and financial institutions are reporting large accounts and dollars representing unclaimed property, much of which will go directly to the state instead of the customer or the rightful owner.

Tax professionals may not think that unclaimed property compliance falls within their department's jurisdiction. Such thinking, however, is usually not the case. Even though unclaimed property laws are not tax laws, they are close cousins. The law looks like a tax because there is an annual filing requirement governed by state law. It feels like a tax because compliance requires ongoing monitoring of changes in laws and regulations. Because of these similarities, the tax department is actively involved in, and ultimately responsible for, unclaimed property compliance.

This is occurring more and more in businesses and corporations around the country because the tax department commonly has a structured compliance calendar to ensure the timely completion of periodic tax filing deadlines. Moreover, this calendar is easily adapted to unclaimed property reporting deadlines. In addition, because tax professionals are most familiar with the process of state and federal tax audits, they are often left with managing an unclaimed property audit if it occurs. This is why it is important for tax professionals to become conversant with state abandoned property requirements.

What is Unclaimed Property?

Each of the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and some foreign countries, including three provinces in Canada, have unclaimed property laws. Within the United Sates, unclaimed property laws require companies, both public and private, including not-for-profit entities, to annually report and remit all unpaid/unfulfilled liabilities owed to third parties--such as patients, vendors, employees, customers, clients, shareholders, bondholders, and policyholders--once the prescribed statutory number of years, known as the "dormancy period," has expired.

Obligations that remain outstanding once the dormancy period has expired are required to be reported and remitted to the state of the last known address of the owner of...