FSS Newsletter - June 2014 

Unclaimed Property: The Danger of Non-Compliance

Business owners and managers need to be aware of the unclaimed property laws that have been enacted in their state of business. These statutes expose businesses to penalties and fines for failing to report and deliver unclaimed property. As we discussed in our May 2014 newsletter, unclaimed property is any financial asset that has been abandoned by the owner for one or more years. Just some examples of unclaimed property include dividends, payroll checks, utility deposits, refunds, and mineral interest or royalty payments.

Requirements in Texas

In Texas, all holders, including non-profits, of unclaimed property are required to file a holder report by July 1st of every year. In addition, holders are required to mail a notice by May 1st to all owners of property over $250 that are to be included in the July 1st report. Abandonment period requirements and sample letters can be found here: http://www.window.state.tx.us/up/reporting.html.

Example.  At the end of a pay period an employer issues checks to employees by debiting payroll expense and crediting payroll payable. If the employee never presented the check to the bank, the employer's payroll liability remains outstanding. Even though the check was never presented it doesn't relieve the property right to the employee or relieve the obligation to the employer. After one year if the employer manually writes off the liability it is understating its payroll liability and not properly reporting the unclaimed property.

In the above example, failure to comply with the reporting requirement of unclaimed property can expose the company to potential fines and penalties. Any property not delivered by the statutory due date is subject up to a 10% penalty with interest assessed at 10%. The state of Texas has been increasing the frequency of its unclaimed property audits in the past several years. As a result, if you get chosen for an audit there is no statute of limitations. In years adequate records are not available, the auditors are allowed to use estimation techniques. When this is necessary, it is possible for penalties and fines to multiply.

For companies wanting to limit their exposure, there are policies and procedures that can be put in place to improve the identification and reporting process. At Freemon, Shapard & Story we can help implement these procedures as well as perform periodic reviews (agreed upon procedures) of the procedures. Additionally, if you have any questions about filing the holder report please contact us.

Sincerely yours,