Continued Unclaimed Property Activity in California

Continued Unclaimed Property Activity in California

Unclaimed property refers to certain types of “intangible property” (such as uncashed checks, stocks, refunds, customer overpayments, etc.) that a business owes to its employees, customers, vendors, creditors, or shareholders. Special rules under state law are triggered for unclaimed property when there has been no activity/contact with the owner of the property for a specified period of time (“dormancy period”). After the dormancy period has lapsed (generally three years) with no owner contact or activity occurring, the property must be turned over to the state of jurisdiction.

All U.S. states and territories have enacted unclaimed property statutes. California continues to make news with its efforts to increase compliance with existing unclaimed property reporting requirements.

Background

California’s previously enacted Assembly Bill 466 authorized the addition of queries about required annual unclaimed property compliance on certain California business tax forms. The law also authorized the Franchise Tax Board to share responses with the State Controller’s Office, in an effort to identify non-compliant entities and conduct outreach efforts to boost compliance numbers. A previous alert on this subject can be found HERE.

California Assembly Bill 2280

California lawmakers are not done with their changes to unclaimed property rules. On Feb. 16, 2022, the California legislature introduced Assembly Bill 2280, which would establish a voluntary disclosure program for unclaimed property. Currently, California charges interest at a 12 percent annual rate on any past-due unclaimed property liability. This charge may deter compliance with the state’s rules, with companies choosing to await notification of an audit rather than pay the interest assessment. Hence, lawmakers hope that the new bill will remedy this obstacle.

If enacted, the voluntary disclosure program would allow companies to voluntarily become compliant without incurring the 12 percent interest charge. Incidentally, this is not California’s first voluntary disclosure effort. California had a temporary unclaimed property amnesty program in the early 2000s, and the State Assembly declined to advance proposed voluntary disclosure program legislation in February 2018.

Program Eligibility

Holders of unclaimed property would be eligible for the program provided that the following requirements are satisfied:

  • The holder must not be a subject of an examination or must not have received notice of an examination of unclaimed property;
  • The holder must not be the subject of a civil or criminal examination related to compliance with the state’s unclaimed property statutes;
  • The holder must not have had an interest assessment under unclaimed property statutes within the past five years that remains unpaid; and
  • The holder must not have had an interest assessment waived by the Controller in the past five years.

Program Benefits

If accepted into the program, all interest charges for a holder would be waived, provided the eligible holder complied with the following terms:

  • The holder would be required to participate in a state-provided unclaimed property educational training program within three months of being accepted into the program;
  • The holder would be required to review their books and records for the previous 10 years preceding the date accepted into the program;
  • The holder would be required to provide notification to owners of unclaimed property no less than 30 days before submitting the report required under the program;
  • Initial reports would be filed within six months of the date of acceptance; and
  • A final report would be due no sooner than seven months and no later than seven months and 15 days after the initial report, with full payment included.

If the participant fails to meet the above timelines, the Controller would have the right to reinstate all applicable interest assessments.

The bill also contains language to protect the privacy of individuals in the interest of reducing identity theft and fraud by preventing the disclosure of certain documents provided during this program.

Who Should Consider Applying if Enacted?

Any company with operations in California, with California business entities incorporated or organized under California law, or with significant customers, vendors, or employees in California should proactively evaluate unclaimed property compliance in order to consider participation in the new program. Such companies should monitor this proposed legislation carefully.

Business entities incorporated or organized under California law are required to report not only California-addressed property to the state, but also any foreign addressed or unknown address property. Additionally, if complete records are not available, California may require an estimation of liability for those periods where records are not available.

Final Thoughts

Companies that do not have a history of filing unclaimed property reports are encouraged to undergo an internal review to assess any potential unclaimed property liability, and confirm or establish compliance policies and procedures. This is particularly important for companies that have a history of merger or acquisition activity, as such companies may have successor liability for any unreported unclaimed property of the acquired entity.

Taking a proactive approach allows companies to minimize unforeseen obstacles and understand the potential liability that may be identified as a result of participating in this program. For more information on unclaimed property in the state of California, please visit CBIZ Abandoned/Unclaimed Property

Continued Unclaimed Property Activity in Californiahttps://www.cbiz.com/Portals/0/Images/Hero-ContinuedUnclaimedProperty.jpg?ver=gD3l80j2xOlxHFVUnuZjfA%3d%3dhttps://www.cbiz.com/Portals/0/Images/Thumbnail-ContinuedUnclaimedProperty.jpg?ver=B0hZraSOzlWlPUKQNGF0Ew%3d%3dCalifornia continues to make news with its efforts to increase compliance with existing unclaimed property reporting requirements.2022-05-17T17:00:00-05:00

California continues to make news with its efforts to increase compliance with existing unclaimed property reporting requirements.

Regulatory, Compliance, & LegislativeState & Local TaxYes