If your clients have old payroll checks or old payments to vendors that have never cleared the checking account and your client can’t find the employee or vendor, at some point in time they need to turn that money over the State of California. I think there are similar laws in most states.
I’m guessing lots of your clients may not have realized that. I’ll make another guess that they aren’t alone.
Just read a background article on the issue, which is referred to as escheat. I learned there is a 12% annual penalty on any amounts that should have been turned over to the state but were not.
Since I’m making lots of guesses, here’s another one. As hungry as the state is for tax revenue, we may someday see auditors from the State Controller’s Office start looking for money from businesses and charities that haven’t escheated funds. Twelve percent over three or four years could add up to some decent return on an auditor’s time.
You remember that old question about what to do with those old outstanding checks that haven’t cleared?
Writing them off doesn’t work as the answer anymore. Those outstanding checks belong to somebody else.
The correct answer is look again for the payee and then after the proper time runs (3 years according to the article), you should start the specified two-step process and eventually get the money to the Controller’s Office.
A word to the wise is sufficient. Remember that 12% per year penalty. That is some expensive money.
Following article appeared in the California Board of Accountancy’s newsletter Update #77 and is reprinted with permission of the California State Controller’s Office and the California Board of Accountancy.
(For ease of reading, this will not be posted with quotes around the whole article.)
CPAS CAN HELP CLIENTS MEET UNCLAIMED PROPERTY REPORTING REQUIREMENTS
Written by the State Controller’s Office for use by the California Board of Accountancy
Do you have clients who are holding unclaimed property? Perhaps it is a returned security deposit or refund check. Or, it could be stocks, bonds, safe deposit box contents, or other property. With $7.6 billion in unclaimed property received by the State Controller’s Office (SCO) and an estimated 28.6 million owner accounts available to be claimed, chances are, you may have clients who need your guidance in this area.
Under California’s Unclaimed Property Law (California Code of Civil Procedure section 1500 et seq.), unclaimed property escheats to the State if it has remained dormant for a period of time specified in the law—generally, three years. The SCO holds the property in perpetuity until a verified claim is filed by the true owner and approved. All businesses are required to annually report any unclaimed property they hold that has escheated. In order to comply with this requirement, businesses need to review their books and records annually to determine if they hold any escheated property. Unclaimed property includes, but is not limited to, payroll checks, accounts payable checks, refunds, accounts receivable, credit balances, bank accounts, customer overpayments, money orders, traveler’s checks, and insurance proceeds.
Once property has remained unclaimed for the required dormancy period and has escheated, it becomes reportable to the SCO. If a business fails to report, pay, or deliver unclaimed property within the time prescribed by law, it is liable for penalty and/ or interest at the rate of 12 percent per annum.
The following steps outline the mandated reporting process:
- Identify Unclaimed Property. Holders of escheated unclaimed property can include business associations, banking and financial organizations, life insurance corporations, nonprofits, sole proprietorships, partnerships, and other entities holding property belonging to another. Businesses need to review their books and records annually to determine if they hold any property, whether tangible or intangible, that has remained unclaimed or in inactive accounts for the required dormancy period.
- Perform Holder Due Diligence. Due diligence is the process of locating apparent owners of property that has remained dormant or inactive on a holder’s books and records. Holders are required to send notices to owners of property with a value of $50 or more prior to reporting the accounts to the SCO. Due diligence gives the holder the opportunity to re-establish contact with their customers.
- Submit a Holder Notice Report. California has a two-report process. The Holder Notice Report is the first step in the two-report process. The Holder Notice Report is due before November 1 of each year (May 1 for life insurance companies). Properties should not be remitted or delivered with the Holder Notice Report.
- Respond to Owner Claims Resulting from SCO Notices. Upon receiving the Holder Notice Report, the SCO sends out its own due diligence notices to reported owners of property valued at $50 or more. These notices will instruct property owners to contact the holder to claim their unclaimed property before it is sent to the SCO.
- Submit a Holder Remit Report and Remittance. The Holder Remit Report is the second step in the two-report process. The Holder Remit Report is normally due between June 1 and June 15 of each year (December 1 and December 15 for life insurance companies). Property not claimed by the owner must be remitted with the Holder Remit Report.
For complete reporting instructions and links to required forms and free reporting software, please visit the SCO website at www.sco.ca.gov/upd_rptg.html. If you would like to receive notification of upcoming workshops, law changes and updates to forms, or other publications, subscribe to the SCO e-mail list at www.sco.ca.gov/ucp_holder_notification_email.html
If you require additional reporting assistance, you may reach the Outreach and Compliance Unit, within the Unclaimed Property Division, at (916) 464-6088 or e-mail UPDHolderOutreach@sco.ca.gov.
To find out if the SCO is holding unclaimed property belonging to you, go to www.claimit.ca.gov.
Above article appeared is reprinted with permission of the California State Controller’s Office and the California Board of Accountancy.