Unclaimed property within the United States encompasses intangible assets like uncashed checks, unresolved customer credit balances, abandoned bank accounts, and unredeemed gift cards. Initially, unclaimed property laws focused on consumer protection to aid individuals in reclaiming lost funds. However, state-level enforcement has become a significant revenue-generating initiative, with states such as Delaware and California displaying increasingly aggressive tactics in their approach.
For legal professionals advising corporations, proactive planning is essential for addressing shifts in unclaimed property enforcement. Companies can begin by evaluating their unclaimed property profiles and instituting cross-departmental procedures to manage these assets. This includes exploring voluntary disclosure agreements (VDAs) as a means to handle potential liabilities.
Organizations face filing obligations in every state where they have a presence, making compliance a national concern. Companies not maintaining consistent reporting or undergoing major operational changes, like mergers or divestitures, could attract state scrutiny. The typical review can mandate a 10-year lookback, requiring records often not maintained, leading to estimated liabilities using more recent data.
The enforcement process often involves outsourced third-party audits, which lack materiality thresholds and can be protracted. Over recent years, almost all U.S. jurisdictions have mandated the electronic submission of annual unclaimed property reports. This has enabled states to assess reporting trends and benchmark companies against industry standards, facilitating targeted audits.
Delaware and California have pioneered new methodologies for monitoring compliance. For instance, California mandates companies to include unclaimed property disclosures in their income tax returns, sharing this data with state authorities for potential enforcement actions. Meanwhile, Delaware’s complex VDA program is often initiated by the secretary of state, with noncompliance leading to formal audits by the Department of Finance.
Given the complexity and multipronged nature of state enforcement, businesses are advised to adopt comprehensive internal policies to manage unclaimed property. Such policies might involve cross-departmental collaboration to periodically review property lists, thereby ensuring compliance and minimizing liability risk. VDAs offer a mechanism to rectify past noncompliance with reduced penalties, though availability is limited by prior audit history or engagement in voluntary programs.
This article reflects contributions from Zachary Robbins, a state and local tax principal, alongside Jacob Garcia and Kristen McClellan, both state and local tax senior managers at Crowe. For further insights, professionals might consider reviewing the full details available at Bloomberg Tax.