Unclaimed property filing deadlines loom large

Complying with state law with respect to abandoned or unclaimed property is a complex morass of differing requirements around what constitutes unclaimed property, how long it can lie dormant before it must be handed over to state authorities, and how and when to do so.

The cluster of pending filing deadlines is perhaps the most common thread, says Scott Regan, director at Duff & Phelps in the firm’s unclaimed property and tax risk advisory practice. “The biggest issue is lack of uniformity,” he says.

Of the states with fall filing deadlines, the due diligence around managing abandoned and unclaimed property varies considerably, says Regan. States have different requirements for providing notice to holders of unclaimed property, different threshold amounts that trigger unclaimed property reporting, as well as different filing and payment methods, he says.

While most corporate controllers and CFOs are well aware of a company’s tax filing obligations, fewer by comparison are up to speed on unclaimed property filing obligations, says Bob Peters, managing director at Duff & Phelps. States have become more aggressive in recent years, and some are pursuing aggressive audits when they encounter states that have never filed, he says.

States have come to regard unclaimed property as an easy method of raising revenue without raising taxes, says Christopher Jensen, a principal leading the abandoned and unclaimed property service line at Ryan, a tax and unclaimed property services firm.

“They’re doing it in a variety of ways,” says Jensen. “They’re shortening dormancy periods, which accelerates their cash collection, and they’re promoting voluntary disclosure programs, which allows holders to come forward.”

States are also stepping up on assessing penalties and interest on past-due filings, says Jensen. “They’re making a concerted effort to target holders who don’t currently file or who they believe are under-reporting,” he says.

One common misunderstanding in unclaimed property, says Peters, is the concept of nexus, which is important in tax compliance but irrelevant to unclaimed property. Nexus refers to a state’s presence or conduct of business in a given state, which is what triggers a tax obligation in that state. Unclaimed property is a consumer protection, not a tax, so a state’s obligation is not triggered in the same way, he says.

“More states are requiring negative reports for the 2019 report year, and holders can expect even more going forward,” says Peters, meaning companies may have to file in certain states just to assert they are holding no unclaimed property subject to that particular state’s jurisdiction.

Peters offers some additional filing tips for the fall filing season. “Be complete with your statutory due diligence,” he says. “Make sure you’re registering now for states that require online filing. And make sure you’re paying attention to finer details of reporting. Without some kind of uniformity, compliance can be frustrating, but companies don’t have a choice.”