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Preparing for Fall 2020 Unclaimed Property (“UP”) Compliance – COVID Version

By: Cathleen A. Bucholtz Michelle Moloian |

The busy fall UP reporting season just three short months away.  As we head into the last month of summer, here is our list of the five big action item “best practices” recommendations to help your organization get through the busy fall UP reporting period:

  1. Review All Potential UP

With the current economic downturn due to COVID shutdowns, states are seeing a big drop in tax revenues.  As a result, we expect to see an increase in UP audit activity as states look to UP to make up for their sales & use and/or income tax deficiencies.  Now it is more important than ever to ensure your company is accurately identifying unresolved liabilities.  Remember, UP can arise in numerous ways from a variety of transactions, so be sure not to overlook the “hidden” areas that can potentially generate unclaimed property.  Examples may include de minimis write-off accounts, returned ACH remittances, or even recent acquisitions (stock or asset) where a company may have unknowingly acquired the unreported UP of the target.  Therefore, review your organization’s accounting records, chart of accounts, A/R aging reports, and other accounts to ensure your company is not caught by surprise in the event of a UP audit.

  1. Due Diligence – Start Now

All jurisdictions statutorily require companies to mail due diligence letters to the apparent owner to resolve an open liability prior to reporting and remitting the funds to the jurisdiction as unclaimed property.  Due diligence letters must be mailed within a “window” of time, the average window being “not more than 120 days and not less than 60 days,” before the report is due.  Some states have a larger window (e.g. CA is not less than 180 days) and some states have a smaller window.  If letters have not yet been mailed for your organization, they may need to be mailed out as soon as possible.  When preparing due diligence letters, be sure to verify the correct dormancy period for each property type and the minimum dollar value (threshold amount) for which due diligence is required.

  1. Ensure your Compliance Calendar & Timeline are Up to Date

If you are already utilizing an internal compliance calendar and/or timeline, insure that your calendar is up to date with the latest statutes and regulatory changes.  For example, effective on July 1, 2020, Colorado has shortened its dormancy period from 5 to 3 years.  This means that your company will need to file property that is 3 years old as of June 30, 2020 (transaction dates from July 1, 2016 thru June 30, 2017), as well as adding in the “catch up period” for unreported items created by the dormancy period change for Colorado (July 1, 2014 thru June 30, 2016).

In addition, due to the ongoing COVID challenges, special attention should be given to ensure timelines are compatible with your current COVID work environment.  If you anticipate delays, most states offer extensions, and some states even allow extensions for due diligence mailings when you apply for a filing extension.  Please email us if you have any questions about available extensions, or you can also visit www.unclaimed.org/covid/ for a list of specific COVID considerations.

  1. Know HOW to File

In addition to what and when to file, make sure you have determined how to file for each state.  This is an easy process if your company utilizes a third party service provider or reporting software application.  However, if you are doing the filing directly with the States, be sure your compliance calendar also lists the form and delivery requirements for submitting reports and remittances for each jurisdiction.  Keep in mind that due to the current COVID restrictions, some states that have typically accepted paper reports or CD’s are now requiring uploads or e-mailed reports.  Also, many states are moving to require only electronic payment options.  Make sure that you know the rules for each jurisdiction in which your company is required to file to ensure that you have time to take the necessary steps to submit reports and remittances by due date.

  1. A Word on Record Retention

With the potential increase in UP audit activity, it is important to ensure that your company is archiving appropriate records in case of future audits.  Most states UP record retention requirements are not the same as the IRS record retention requirements.  In fact, many states have record retention requirements of up to ten (10) years plus the dormancy period.  For example, in a state with a three (3) dormancy period you should retain records going back to the 2010 report year, which includes transaction dating back to 2007.  The specific date range will depend on the state, the property type, and the industry.

The best time to start your record retention process is contemporaneously with your annual filing, when you can make sure you are saving all documents that can support your company’s reporting history and aged item remediation support (e.g. refund checks) as one of the final steps in your compliance process.  A sample list of documents related to your unclaimed property archive documents can include, but are not limited to, the following:

  • Bank statements and/or cashed checks
  • Returned due diligence letters confirming amounts are not due
  • Any e-mail or paper correspondences related to resolution of liabilities
  • Copies of reports filed and proof of remittances
  • Accts receivable aging reports

In addition, if your organization has had a recent system change, ensure that archived systems remain accessible to enable your organization to research records at the transaction level.  The further back you can access records, the better equipped your company will be to address an audit since auditors will extrapolate to estimate an exposure for periods where no records are available.

Closing Remarks …

Navigating the uncertain terrain of UP compliance in more than 50 jurisdictions can be difficult and treacherous, but taking the time to prepare for your company’s UP compliance obligations well before the reporting deadlines can ease your compliance burden and minimize costly mistakes.

We at True Partners Consulting have helped hundreds of organizations with their UP compliance needs, and we are available to assist your company with all of its annual UP compliance issues or concerns.  Other UP services that our team can help your company with include: reviewing and creating policies and procedures, voluntary disclosure programs, audit defense, exposure quantification and analysis, merger and acquisition due diligence, and gift card and stored value card consulting.

If you are interested in learning more about how we can help with any of your company’s UP needs, please reach out to the members of the True Partners Consulting Unclaimed Property Management Team to set up a call.