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4/1/16 11:30 AM

Abandoned Property Reciprocal Reporting: Who Cares?

by Greg VerMulm

reciprocal-unclaimed-property-reporting.pngYou may have heard of reciprocal agreements between states for abandoned and unclaimed property reporting. Most holders won’t even look into it, but the question often lingers: “Is there something in reciprocal reporting that could save us time and money?” Your managers may have asked you to get through unclaimed property duties as quickly as possible, so you can get back to your regularly scheduled jobs. This blog will help you settle the questions of reciprocal reporting.

Where did this aspect of unclaimed property law come from?

According to the National Association of Unclaimed Property Administrators (the folks who work in state abandoned and unclaimed property departments), in 1954, reciprocal reporting was created to keep holders from duplicate liability. In other words, if a holder reported to one state and another state had a better claim on a property, the first state, through reciprocal agreements, would automatically forward the property to the second state.

This process was started during a time when we didn’t have computers and online databases to streamline the reporting process. In addition to providing a convenience for holders, a state’s willingness to forward a property to another state made it possible for those with small amounts of property to report to only one state. The inordinate amount of time spent preparing paper reports for multiple states wouldn’t seem to match the weight of the small amounts of property that required reporting.

Reciprocal reporting today

Today, online records and computerized processes make it possible to report small amounts as easily to all states as it is to report to one state, so reciprocal reporting isn’t used as much these days. In fact, it’s not necessarily a great idea to do it, because:

  • The various jurisdictions’ statutes are always changing, and filing reciprocal reports requires keeping on top of current laws, which takes time—and that time might be better spent just reporting to all applicable states.
  • Not all states exchange reporting, and any potential confusion increases the potential for misreporting, which can result in penalties and interest.
  • Not all states keep good records on reciprocal reporting, which could make it difficult to follow the trail for owners, as well as during an audit.
  • Different abandonment periods in different states make coordinating reports complicated, and any mistakes could result in penalties and interest. 

Over past decades, some holders have used reciprocal reporting because they believed it helped them avoid penalties in states to which they owed property. This isn’t an appropriate use of reciprocal reporting, and could in itself lead to penalties if it can be proven that the company willingly tried to avoid proper reporting.

In spite of all the reasons NOT to use reciprocal reporting, there still are limited reasons to use it. One of the original reasons for reciprocal reporting is still the main reason it is used today: to report small amounts of property when that’s all a company has to report. If something goes wrong, the risk of added penalties is small. If a company has large amounts of unclaimed property, it is less advisable to use reciprocal reporting—even for small reciprocal amounts. The larger amounts of non-reciprocal reportable property could be compromised in connection with any misreported reciprocal amounts. It’s possible mistakes made in reciprocal reporting could suddenly put a holder on a state’s radar in a negative way—and that could potentially trigger an audit.

If you do decide to use reciprocal reporting, keep in mind some properties are not eligible. Stocks, with varying values, and safe deposit box contents are two examples.

Benefits of reporting to individual states

Unless there is a specific, unique reason to employ reciprocal reporting, there are many reasons to report to individual states, including:

  • Keeps any reporting issues separate and unlinked with other states
  • Less risk of missing reporting deadlines
  • Less potential for the trail to go cold for owners who eventually want to find their property
  • Reporting directly to the appropriate state indemnifies the holder for that property and helps holders avoid ongoing liability

Add to this the fact that it’s a good idea (for some companies) to build relationships with state administrators—and you have your answer. It’s better NOT to use reciprocal reporting unless you have a specific reason. Hopefully this has resolved that nagging little question that was left in your mind about this subject, and you can now get on with multi-state reporting with a clear conscience.

Topics: Reporting