Unclaimed Property – Why do I care?

Posted by Kelley LearcloseAuthor: Kelley Lear Name: Kelley Lear
Email: kelley.lear@redmoonsolutions.com
Site: http://blog.redmoonsolutions.com
About: Kelley is a member of the executive leadership team and leads our sales and marketing efforts at Red Moon Solutions. Kelley’s extensive experience in project management, product management, and consulting with Fortune 500 and Global 1000 clients is extremely important in this role.See Authors Posts (127) on Aug 16, 2011 | 0 comments

OK, for the average tax department, you might be asking yourself, why do I care about unclaimed property?  And depending upon your industry, operations and organizational structure, you may not.  However, since this is a hot topic out there in industry, even if this topic does not affect your tax department heavily today, you may want to get educated on what it is all about.  Thought I would share some thoughts about it…

So, what is it?  Well, today it can be one of the biggest sources of state revenue.  As defined, it is the “fixed and certain interest” in tangible and intangible property (held, owed, or issued), in the course of a “holder’s” (your company’s) business that at some point has been unclaimed or abandoned for a specific period of time (dormancy period) by the rightful owner.   It is not a “tax”.  Let’s explore some of the types of unclaimed property out there that can be created within your company.  These could include:

• Transactions such as class action settlements, contract renewals and some types of mergers and acquisition activity
• Self-insured employee benefit plans (medical, dental, FSA’s)  and insurance plans (worker’s comp, auto and general liability)
• Payroll checks that have gone uncashed
• Uncashed A/P checks
• Aged A/R credit balances
• Loyalty programs,  gift cards, rebates, merchandise credits, and promotions
• Stocks and underlying shares
• Dormant bank accounts
• Royalties
• Interest, dividends, other deposits
• Mineral interests and other industry specific product/property interests

Why should your company care about this?  Well, as we all know, the states are hungry for cash as budget deficits are running amok.  Revenue and collections are still in a dire state, with shortfalls increasing in most jurisdictions.  Audits are becoming more aggressive by the day, most even retaining contract audit firm to ramp up even faster/further.   Additionally, some large states do not support voluntary disclosure processes (VDAs), while others are revisting amnesty programs.  Key to remember is that erroneous reporting and failure to report negates any potential relief provided by statute.  Also, “willful non-compliance can result in “criminal penalties”!  Ouch.

There are fifty three jurisdictions today with annual reporting requirements across multitudes of different property types across industries such as banking, insurance, transportation, telecom, retail, and oil, gas and mining.  Companies need to identify and track sources of unclaimed property.   Documentation and tracking is everything.  It is important to note that single greatest contributor to large unclaimed property audit assessments is the lack of historical data and the ability to produce proper supporting documentation for your claims.  For the most part, there is no statute of limitations, making this an ever growing burden on your tax department.  Remember that a lack of documentation is not a defense under examination.  A baseline for record retention and supporting documentation should be 10 years, however, dormancy can be up to and exceed fifteen years. 

So, get your team into action on unclaimed property, today!  Planning should include looking at all the areas mentioned above and tracking sources (or potential sources of) unclaimed property within your company.  Then, once identified, put in place internal controls over unclaimed property processes, which continues through reporting and remitting to the appropriate jurisdiction.  Make sure you put in place risk mitigation strategies as you go.  And by the way, there are solutions to automate the storage and workflow processes around unclaimed property (check out our eTaxPortal), as we have clients doing this today!  The key is to store your findings and supporting documentation electronically.  Make sure that it is easy to search and store all research, as well as filed reports and remitted funds.  Ensure that compliance cycles are automated as well as audit cycles with respect to unclaimed property, as these can be tedious and time consuming.  Retain all records over time.  And, don’t forget, plan ahead for each year.  Any automated system should be able to make sure you stay on task and that you and your team members are reminded of your annual reviews and analysis, never mind in terms of jurisdictional filing and reporting.   Get automated, get controlled, and eliminate risk.  Good luck my friends!