THE BLOG
11/08/2014 05:40 pm ET Updated Jan 08, 2015

Unclaimed Property -- The Check Is in the Mail

When I decided to write this blog about unclaimed property (UP), the first thing I did was to go to the National Association of Unclaimed Property Administrators' (NAUPA) website to see if I had any UP (i.e., money) due me. I clicked on New York State (NYS) and entered my last name. Up came six pages with people who had the same last name as I do -- Seiden. As I scrolled down the names, I came across both my wife's name and my name. Apparently I "found" money due us from a couple of companies that had remitted money to NYS in our names.

While neither of us have any idea why these companies thought they owed us money, I decided to write about a couple of often overlooked considerations regarding UP.

First, it took me less than five minutes to identify the fact that we had UP being held by NYS and to fill out an online form so we could receive the UP due to us. If you are still not convinced it's worth five minutes of your time -- consider these facts:

  • According to NAUPA, in FY 2011, 2.5 million claims totaling2.25 billion of UP were returned to rightful owners.
  • There is approximately41 billion being held by various states.
  • Approximately one in every 10 people in the United States has UP.
  • In December 2011, a Kansas City woman received a6.1 million check for UP. The funds related to stock purchased long ago by one of her ancestors.
  • About 10 days after I filled out the online UP form with NYS, my wife and I each received a check in the mail from the NYS Comptroller's office. While neither of our checks came close to what the woman in Kansas City received, our checks did total more than40. I think most people would agree that the five minutes it took me to find out we had UP and file the online form was well worth the40 we received.

But the question remains: what made two companies send NYS approximately $40 in my wife's and my name?

What is UP?

UP is generally defined as property that is held by a business but legally belongs to another person or business. Typical types of UP include:
  • Uncashed dividends
  • Unclaimed security deposits
  • Life insurance proceeds
  • Uncashed vendor payments
  • Uncashed payroll checks
  • Stocks/Bonds
  • Misc. outstanding checks
  • Safe deposit boxes
  • Unredeemed gift certificates
  • Dormant checking/savings accounts
  • Rebates

Generally, property becomes classified as UP when the rightful owner takes no action to claim the property for a certain period of time -- this time period is typically referred to as the "dormancy period." Once the dormancy period has elapsed, the property becomes classified as UP and can become escheatable (i.e. the requirement to remit UP to a state). Consider the following examples:

  • An employee is unaware she is entitled to a final paycheck and moves out of town before receiving the check. The company has no forwarding address and is unable to locate the former employee. The uncashed payroll check legally belongs to the employee, but is held by the employer.
  • A person purchases a100 gift certificate from Company X. After three years, the gift certificate has still not been redeemed. The100 still legally belongs to the purchaser (in most states), not Company X.

What Should a Business Do With UP?

It is important to note that UP is administered at the state level. In fact, all 50 states and Washington D.C. have their own laws and regulations regarding types of property that can be classified as UP, the dormancy period by property type, and the reporting requirements for holders of UP. Before property is classified as UP, holders must exhaust all options to try and locate the property's rightful owner. Many states dictate by law specific actions a holder of UP must take to find the property's owner.

The U.S. Supreme Court has established two primary jurisdictional rules that dictate the state where UP is to be remitted based on specific fact patterns. Under the primary-priority rule, the holder must report UP to the state of the rightful owner's last known address. If the owner is unknown or the holder lacks the owner's address records, the second-priority rule provides that the holder must remit the UP to the holder's state of incorporation. Based on this last rule, it makes perfect sense why UP collections are such an important component of Delaware's economy.

When advising businesses that have historically never reported UP, I strongly advise the owners to follow some basic guidelines:

  • Become familiar with the various types of UP and determine if your business has such property on its books and records.
  • Understand the dormancy period for each class of UP that the business may have.
  • Uncashed checks/refunds due to customers or vendors should not be reversed into income.
  • If your business has UP, proactively resolve the situation. In general, states tend to be more forgiving when a company voluntarily remits past due UP than when the state identifies a case of non-compliance through an audit.

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David Seiden is a leading authority on state and local tax (SALT) matters. He is a partner with the accounting and consulting firm Citrin Cooperman, where he leads the firm's SALT Practice. He can be reached at (914) 517-4447 or dseiden@citrincooperman.com.

Citrin Cooperman is a full-service accounting and business consulting firm with offices in New York City; White Plains, NY; Norwalk, CT; Livingston, NJ; Plainview, NY; and Philadelphia.