Basic Principles of Unclaimed Property
Introduction
What is unclaimed property?
Property that has been abandoned, lost, or otherwise lacked owner contact for a specified amount of time.
What are common unclaimed property types?
Bank accounts, investment accounts, uncashed vendor/payroll checks, customer credits/refunds, security deposits, life insurance policies, uncashed insurance checks
What is dormancy period?
By law, unclaimed property is reportable once it reaches the dormancy period. That period covers the time that property has been aged without owner contact, typically one to five years. This allows companies enough time to continue to resolve credit issues and other outstanding matters on their own before escheating.
The Basics of Reporting
Common Terms and Definitions
- Escheat – A government’s right to take ownership of unclaimed property. To escheat is to report property.
- Holder – Any person or organization in possession of property that is subject to the state’s unclaimed property laws that belong to another person or business. In general, Holders are required to escheat (report) unclaimed property pursuant to the jurisdictional priority rules.
- First Priority Rule – Property is reported to the state of the owner’s last known address as shown on companies’ books and records.
- Second Priority Rule – If the owner’s name or address is unknown, the property is reportable to the company’s state of incorporation.
Each state and U.S. territory has its own reporting requirements, which can be difficult to navigate if you are holding unclaimed property addressable in multiple states.
Reporting Forms
The reporting forms and data formatting instructions vary by each state. Depending on the state, once compliance has been established, the state may require the holder to continue to file a negative report ($0) for subsequent years. Other states only require a filing if unclaimed property needs to be reported. If your company chooses to file the paper form, make sure you check for the notary requirement.
Due Diligence Notification
Due diligence notifications are a preliminary step in the compliance process required by all states. Due diligence letters are mailed to owners at their last known address prior to the time of escheatment (typically 60-180 days).
The purpose of due diligences letters is to unite owners with their unclaimed property by providing them with a chance to reclaim the property before it ultimately gets reported to the states.
Exemptions
Exemptions and deductions should also be considered before escheating unclaimed property to the state. Certain states provide holders with a business-to-business exemption for specific property types as a way of maintaining company and customer/vendor relationships.
How Can Tracker PRO Help?
Tax.com™ experts work directly with the states to ensure Tracker PRO includes comprehensive coverage of unclaimed property reporting rules imposed by all states. Import your assets and leverage Tracker PRO to manage the entire compliance life cycle including dormancy periods, due diligence, owner claims, and reporting.