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Unclaimed Property is All the Rage in California
This tax season California regulators have updated requirements, instituted an amnesty program, and launched new fraud prevention efforts in an effort to encourage unclaimed property compliance. These changes increase the risk of exposure for businesses holding unclaimed property and not taking adequate steps to address the problem. In the following, our tax team breaks down what this might mean for you if you filed a partnership, corporate, or LLC tax return — and what you’ll need to do to avoid an audit or additional costs. What is unclaimed property? Unclaimed property refers to property or accounts that have not generated any activity or engagement with the owner for three years or more (known as a dormancy period), after which it is labeled “unclaimed.” Common examples of unclaimed property include uncashed checks, stocks, safe deposit box contents, gift cards, insurance payments, or refunds. For example, California hosts a database for taxpayers to verify whether the state may be holding any unclaimed property in their name (or related to their properties). If your business or organization is holding unclaimed property, you must either return it to its owner, or, if unable to locate the owner, turn it over to the state once the dormancy period has ended (called “escheating”). Any holder that knows unclaimed property exists but has not sought to effectively address the issue can face expensive consequences. California’s updated unclaimed property requirements Currently, there is a low reporting rate of unclaimed property in California, which has prompted the state to act. It is estimated that businesses are withholding close to $18 million in escheatable funds, and the Legislative Analysts’ office estimates only 2% of businesses are compliant with the current unclaimed property reporting laws. But now California tax returns will require taxpayers to answer the following questions regarding unclaimed property compliance:
- Have you previously filed an unclaimed property holder remit report with the state controller’s office?
- If so, when did you last file the report?
- What was the amount last paid?
- Takes part in an educational training program.
- Makes a diligent effort to reunite unclaimed property with its rightful owners.
- Promptly files reports and submits unclaimed property spanning the past 10 years.
- Reviews its accounting records for unclaimed property spanning the past 10 years.
- Identify the unclaimed property
- Perform due diligence by notifying the proper owner of the property
- Remit the unclaimed property to the state.