Fall unclaimed property reporting season is upon us, and most holders are gearing up to meet many of the states’ October 31/November 1 reporting deadline. It is essential that holders track and monitor state unclaimed property legislation to follow any new requirements, which often lead to changes to the states’ reporting instructions. State websites and holder manuals contain key information related to these changes, as well as the actual mechanics of reporting and remitting unclaimed property. Be sure to review these updates prior to each reporting cycle and refamiliarize yourself with state requirements as these vary from state to state. A high-level review of holders annual compliance reporting obligations are outlined below.Where…
Under the federal common law priority rules, unclaimed property must be reported to the state of the owner’s last known address, according to the books and records of the holder (first priority rule). If the address is incomplete or unknown, the property must be reported to the holder’s state of incorporation (second priority rule).
The states require holders to report in the fall and/or the spring/summer, depending on the holder and/or property type. Review any legislative updates for changes to the reporting due dates. For example, Texas recently amended its unclaimed property law to require that unclaimed life insurance proceeds be reported on July 1 instead of November 1 (for this upcoming cycle, holders must hold the proceeds and report them on July 1, 2022).
Other states require the holder to file a negative, or “zero” report, if the holder does not have any unclaimed property to report. Some states only require negative reports if the holder meets certain requirements, while others will not accept them at all, so it is important to know the states’ requirements, including how to file them (some states require a specific form and others require online filing).
Review legislative updates for new requirements as well. In Illinois, for example, negative reports are now only required if a holder has: annual sales exceeding $1,000,000; publicly traded securities; a net worth of over $10,000,000; or over 100 employees. Even if a negative report is not required, states often encourage them because it demonstrates that the holder is meeting its ongoing compliance obligations.
State websites and holder manuals assist the holder in the actual reporting and remitting of unclaimed property. Be sure to review reports to ensure completeness and accuracy. Reports may be rejected if the holder uses an incorrect property type, ownership, and/or relationship code. Some codes are unique to a particular state, so be sure to check the websites. States also have specific instructions for the delivery of certain property types, including securities and safe deposit box contents.
In many states, electronic reporting is mandatory, with an increasing number moving towards requiring online reporting (and sometimes payment) via a portal on their website. For example, Virginia now requires reports to be submitted via its secure website and no longer accept CDs or any other physical media (and allows the AP-1 form to be signed and returned electronically).
The type of remittance accepted also varies among the states, and a failure to comply can lead to fines and/or penalties. For example, Nevada requires payment by ACH debit and assesses a fee (the greater of $50 or 2% of the amount of the payment) for noncompliance. Washington assesses a 5% penalty for the failure to file and pay electronically, and a 10% penalty for the failure to file, pay or deliver property on time.
The timely reporting of unclaimed property is the law, and states can apply steep fines and penalties for noncompliance. Reporting late, intermittently, or incorrectly can also raise audit red flags. Red flags include gaps in a holder’s reporting history, or missing property types that are standard in a particular industry. Remember to look to any merger or acquisition activity, which could include pockets of unclaimed property that may need to be reported.
…a holder can’t report on time? States often allow holders additional time to file unclaimed property reports due to unforeseen circumstances. States often have their own extension request forms and may require that certain information be included, which can differ from state to state. Extension requests must typically be sent in writing prior to the reporting due date (usually 30 days in advance) and include the reason for the request. An extension request shows a good faith intent by the holder to report and may also reduce the risk of an unclaimed property audit. Requests are typically approved on a case-by-case basis but are often granted in the event of a change in personnel, business merger or reorganization, or natural disaster. States are continuing to grant extensions due to the COVID-19 pandemic. For example, Missouri will grant a 30-day extension when requested in writing.
Wrapping It Up
As a reminder, the unclaimed property laws are constantly evolving, as are the reporting instructions. It’s important therefore to stay current with legislative changes and reporting instruction updates. We also recommend retaining copies of the filed reports as well as any supporting documentation (e.g., due diligence responses, receipt confirmations, etc.) to document your compliance with the states’ varying record retention requirements.
Developing strong policies and procedures around your unclaimed property reporting processes assist in maintaining compliance with the unclaimed property laws. Contact Us if you have questions or challenges with your escheat compliance program. You can also visit our Knowledge Vault to download free resources covering a variety of unclaimed property topics that help address your needs.
*Content contained in this article is considered accurate as of the publish date.