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Unclaimed Property

Unclaimed Property - The basics of escheatment law for small business


Finders keepers, losers weepers. Almost every child is familiar with the sentiment that being in possession of an item makes it yours. In the real world, especially in a business setting, it rarely works that way. So although it may seem like a logical idea on the surface to absorb unclaimed or abandoned property into a business’ assets, it is likely that doing so is illegal and can put the business at risk.

Any business that cuts checks, pays employees, receives security deposits, issues credits, or handles any one of more than 75 categories of possible unclaimed property, needs to know and understand the basics of escheatment laws.

Escheatment is the term used for the process of reporting and turning over all forms of unclaimed or abandoned property to a state authority. Enacted on a state-by-state basis, escheatment laws ensure that the individual states become the legal owners of abandoned property. Congress, in order to control the deposition of unclaimed property among the states, enacted the Uniform Disposition of Unclaimed Property Act of 1954, followed by the Uniform Unclaimed Property Act of 1981, and most recently, the Uniform Unclaimed Property Act of 1995. Although only a handful of states have adopted the 1995 version of the Uniform Unclaimed Property Act (UUPA), one or more versions of the UUPA have been enacted by most states. Failure of a business to comply with UUPA laws could result in criminal charges as well as steep penalties and fines.

Defining Unclaimed Property

Although the factors determining whether or not property is unclaimed varies greatly from state to state, in general, there are several commonalities in most state laws. The property in question, with limited exceptions, is generally an intangible item, such as uncashed checks, bank accounts, stocks, bonds, benefits from insurance policies, etc.; the holder of the property must be legally obligated to and unable to locate the property owner; and the property must remain unclaimed for a period of time referred to as the “dormancy period”.

Defined by state law, the dormancy period is determined by the type of property and may range from one to fifteen years. It is generally measured from the date the holder comes into possession of the unclaimed property to the date the property must be reported to the state

Reporting Unclaimed Property

Businesses are required to report and remit unclaimed property to the state annually. As the requirement to report is based on the property owner’s state of residence, organizations may need to submit reports to multiple states. The BizFilings.com website contains a helpful lookup of escheatment laws by state that provides detailed information in escheatment laws and regulations for each state and the District of Columbia.

Once the property is turned over to the state, the state holds the property on behalf of the owner and usually utilizes the property at its will until it is claimed by the rightful owner.

Auditing Process and Consequence for Compliance Failure

Unclaimed property can become a substantial hidden liability for employers. In recent times, states have turned to an aggressively enforcing unclaimed property laws as the use of the property helps to relieve the state’s financial burden. Companies that do not report or underreport unclaimed property to the state may find themselves subject to an audit.

State agencies auditing businesses suspected of noncompliance will examine the company’s records and verify accuracy of reports filed for the previous 10 to 15 years. Auditors will request evidence substantiating that the property was abandoned by its owner, and if the property is unable to be cleared on a bank statement, refunded, reissued, or adjusted, it may be considered questionable by the examiner. An informal preliminary audit report will also be prepared to outline the findings and is the holder’s last chance to provide documented proof that the questionable property is no longer their obligation.

Additional information on the escheatment process can be found at www.sec.gov. Inquiries about specific laws or rules should be directed to an attorney who specializes in securities law.

Visit the National Association of Unclaimed Property Administrators website to discover if your state may be holding unclaimed funds that belong to you.

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