Amnesty program broadens as states join unclaimed property voluntary compliance program.

State governments may hold more than $10 billion in unclaimed property belonging to some 26 million Americans, according to the National Association of Unclaimed Property Administrators (NAUPA).

Concerned that even more unclaimed property may be held but not reported by businesses, NAUPA earlier this year launched a national voluntary compliance program to increase awareness of reporting requirements, to encourage states to offer assistance to businesses seeking to comply and to return unclaimed property to its rightful owners. This amnesty program now spans 40 states and the District of Columbia. (See 6 Tax Management Inc. Multistate Tax Report 335 (6/25/99) for a listing of the states.) Some states have even extended the amnesty period beyond the Oct. 31 deadline proposed by NAUPA.

States recognize that not all holders are in compliance with unclaimed property laws. Under the NAUPA amnesty program, businesses and financial institutions that voluntarily report overdue unclaimed property to the appropriate state agencies may qualify for a waiver of penalties and interest. (For a discussion of the ramifications of state unclaimed property audits, see the State & Local Taxation column in next month's issue of The Tax Adviser.)

What Is Unclaimed Property?

Unclaimed property generally is defined as intangible property and any income earned thereon, that is held, issued and owed to another in the ordinary course of the holder's business beyond a statutorily specified period and without the owner exercising any right of ownership. Uncashed compensation and dividend checks, as well as unrefunded security deposits and customer overpayments, are common examples of unclaimed property, which also may include tangible property (such as contents of safe deposit boxes).

Once property remains unclaimed (or dormant) for a specified number of years, a holder is required to turn the property over to the state. Under rules established by the Supreme Court for determining which state receives the property, unclaimed property first goes to the state of the creditor's last known address, as shown by the debtor's books and records. If a holder does not have the creditor's last known address, the property must be remitted to the holder's state of corporate domicile--i.e., the state of incorporation. Dormancy periods vary according to the type of property involved and state law.

Because unclaimed property is so broadly defined, a company in business for even a short period of time is likely to have some amount of unclaimed property on its books.

Lack of Awareness

Many people are surprised when they realize that their companies have unclaimed property reporting and payment obligations that supersede internal accounting practices (such as taking amounts back into income after a certain number of years).

Unfortunately, this lack of awareness is not limited to the property holders. Some practitioners have erroneously advised their clients that it is permissible to write off unclaimed accounts, rather than report these accounts to their states' unclaimed property division.

Further complicating matters, a corporation must not only file returns in the state where incorporated, but also in those jurisdictions where its creditors reside, even if the corporation does not do business there.

To limit the requirement to file returns in multiple states, some states have reciprocity programs that allow a holder to report unclaimed property due a number of states on a single state return. While reciprocity may limit a holder's return filing requirement, member states generally require a holder to conform to their specific dormancy periods, not the dormancy periods of the state where the return is filed.

Unlimited Lookback Period

Few state unclaimed property laws provide for a statute of limitations. Accordingly, states have the fight to look back indefinitely, even when a taxpayer has been filing returns. Unlike tax voluntary disclosure agreements, the amnesty program does not mandate that states limit the lookback period to a specified number of years.

Voluntary Programs Vary by State

Although all state unclaimed property voluntary compliance programs waive penalties and interest, other aspects may vary by state. States that have not joined in the national program may have similar voluntary disclosure programs in effect.

Conclusion

Businesses interested in participating in the national voluntary compliance program should contact the appropriate administrators in the states in which they are required to file. Information on the national program can be obtained by calling NAUPA at [phone], or from their Website at http://www.unclaimed.org.

Even if a state does not participate in the national voluntary compliance program, there may be some other form of amnesty available. Interested parties may check by contacting the appropriate state tax administrator.

FROM KAREN NAKAMURA, CPA, TAX MANAGEMENT INC., WASHINGTON, DC