KeepUP™ Blog

Every business is required to report unclaimed property annually. If you are unsure if your company is reporting unclaimed property (“escheating”), start by asking your finance or accounting team members. A few examples of unclaimed property are unpaid or unreconciled liabilities such as payments to vendors, refunds or credits owed to customers, unpaid wages and/or commissions, unpaid insurance claims and lost/abandoned bank accounts or investment accounts.

Unclaimed property compliance is not an option; it is a requirement. The risks of non-compliance could result in fines and/or penalties being imposed. Additionally, a company could be subjected to an exhaustive escheat audit where the disruptions to time, resources and greater amounts of monies owed are at risk.

Organizations should conduct regular reviews to ensure their compliance. The following, while not exhaustive, contains the most important tasks for you to perform and consider establishing policy and procedures to create an efficient unclaimed property program.

In any given year, it is not uncommon for a holder to have no unclaimed property to report to one or more states.  Does this mean you have no reporting obligation?  Not necessarily.  Some states still require that you file a “negative” report.  This negative report indicates to the state that the holder has no property to report for the given report year, while demonstrating ongoing compliance with the state’s unclaimed property requirements.

The states are split on the matter of negative reports, so it is important to check with the state(s) in question before filing.  Approximately half the states require negative reports to be submitted.  In these states, failing to submit even a negative report will cause the holder to be considered out of compliance.  Other states do not require negative reports but will accept them if they are filed., and a handful of states do not accept negative reports at all. 

A few examples can illustrate the variation in negative reporting requirements across the states:

• Nevada requires negative reporting for three years after the submission of a positive report. After that, negative reports are not accepted.
• In California, if a notice report is negative, a negative remittance report should not be filed. However, if the notice report is positive, a negative remittance report should be filed.
• Connecticut requires a negative report only if the holder is domiciled in Connecticut.

As a holder advocate, one of the most frequent questions we receive is whether a company with multiple subsidiaries and entities under its corporate umbrella can file consolidated unclaimed property reports.  The unclaimed property compliance environment is complex, frustrating, and demanding for corporate America, and complex organizational structures don’t make it any easier to navigate.  Conducting unclaimed property filings on a consolidated basis can create efficiencies for many holders.  However, a number of factors should be considered when determining the right approach for your particular organization. 

Consolidated unclaimed property filings are similar to other consolidated financial filings such as income tax filings and financial statements.  Consolidated unclaimed property filings consist of one report sent to each state or filing jurisdiction, usually by a parent company, on behalf of multiple subsidiaries.  This single report contains all property that would have been reported if separate reports had been prepared for each individual entity.

Consolidated reporting simplifies and streamlines the reporting process and tends to be more cost effective regardless of whether the filing process is managed internally or outsourced.   It is particularly beneficial for companies with a substantial number of subsidiaries that would otherwise consistently file zero or negative reports due to limited or no unclaimed property activity.  It may also be the simplest approach for companies who already consolidate financials or are running a common paymaster across its various entities. 

While there are  benefits of a simplified process, there are several factors to consider before deciding to file consolidated unclaimed property reports.

State enforcement of unclaimed property compliance continues to rise.  States are auditing more companies than ever in order to validate that unclaimed property is being reported accurately and completely.  To prevent an audit, many holders over-report property, escheating items that are not actually unclaimed property, or may not be reportable to the states. However, this practice could cause red flags.

The two most common transaction types that are not considered to be unclaimed property are accounting errors and exclusions/exemptions.

Accounting Errors

Accounting errors are not unclaimed property.  Unfortunately, errors in accounting systems do occur that cause items to appear to be outstanding or unresolved, when in fact they are not. This leads to the potential for over-reporting.  Examples of accounting errors include:

• duplicate payments
• voids that were never processed
• misapplied payments.

Prior to reporting, research should be performed to identify and correct accounting errors and avoid over-reporting.   

Exclusions/Exemptions

Many state statutes include provisions that exclude certain transactions from the definition of unclaimed property, or specifically exempt the property from reporting.  An example of a state exclusion appears in the Kansas unclaimed property law, whereby:

Within the last 18 months, the state of Tennessee has enacted two new statutes significantly changing their unclaimed property law.

House Bill 420

On May 25, 2017, House Bill 420 was signed into law.  This new law repealed and reenacted the Uniform Unclaimed Property Act (RUUPA) and is Tennessee’s version of the 2016 Revised Uniform Unclaimed Property Act.  It included reductions in dormancy periods, dormancy trigger changes and new due diligence requirements, among other measures.  It also introduced new provisions for certain property types, including stored value cards, and provided for new reporting and payment requirements.

Dormancy Changes

The biggest change to the Tennessee unclaimed property law included the reduction from five to three years in the dormancy periods for most property types. However, under the new law, payroll properties have a one- year dormancy and stored value cards have a five-year dormancy.

With most unclaimed property transactions being wholly domestic, it’s relatively straight-forward to determine the reporting obligations for most properties.  However, managing foreign transactions continues to be an, at times, confusing topic for U.S. holders of unclaimed property.  We have previously addressed the considerations for handling foreign transactions, but how do more recent changes, such as the introduction of RUUPA, impact the reporting obligations for foreign transactions?

Revisiting the Types of Foreign Transactions:

• Domestic to Foreign: The holder is located in the United States and the payee is located in a foreign country. 
• Foreign to Domestic: The holder is located in a foreign country and the payee is located in the United States.
• Foreign to Foreign: Both the holder and payee are located outside of the U.S.

Wholly foreign transactions tend not to be impacted by domestic escheat laws, so U.S. holders will be most focused on domestic to foreign transactions – those where the owner's last known address is in a foreign country, and to a lesser extent, foreign to domestic transactions. 

Most unclaimed property practitioners are familiar with the concepts of “contact” and “due diligence.”  However, guidelines for both contact and due diligence were primarily created before modern communication formats like email and online accounts became prevalent, making it somewhat difficult to discern whether an owner has met the statutory requirements for indicating an interest in the property

With the introduction of the Revised Uniform Unclaimed Property Act (RUUPA) and the efforts of individual states, these definitions are beginning to evolve. While these changes present new challenges, they also offer new opportunities for holders to modernize their unclaimed property outreach, while simplifying the process for owners trying to maintain contact and claim their funds.

Expanded Definition of Contact

For starters, RUUPA begins modernizing the definition of contact by including the definitions of “Electronic” and “Electronic mail” within the statute.  It further enables the use of modern communication to establish contact by broadening the definition of contact as well as specifically allowing online logins and online activity related to an account to constitute contact from the owner. 

You may be well versed in managing domestic transactions within the framework of the United States unclaimed property laws, but what happens when a foreign country is involved?  While somewhat limited compared to U.S. unclaimed property laws, foreign escheat laws can, and do, impact the reporting obligations of U.S. organizations.  There are several factors to consider when determining how to handle a foreign transaction.

These include, but are not limited to:

• Where the company is domiciled within the United States
• Where the company operates internationally
• The nature of the company’s business

Listed below are the three types of foreign transactions:

1. Domestic to Foreign: The holder is located in the United States and the payee is located in a foreign country. These types of transactions are governed at least in part, by U.S. statutes, and should be evaluated carefully to determine where the reporting obligation lies.  This is typically influenced by the state of domicile and the foreign country in question.  States generally expect that foreign property will be reported to them, whether or not their statute has specific language on this matter.  In addition, the recently completed Revised Uniform Unclaimed Property Act (RUUPA) specifically provides “that the state of domicile may claim abandoned property where the last known address of the owner is in a foreign country.”  However, most states and the Act exclude property that can be claimed by a foreign country.  Consequently, holders need to understand the reporting requirements for those countries for which the last known address is in a foreign country, as well as the law governing their particular state of domicile in order to understand where a foreign property should be reported.