What is Unclaimed Property? Did You Know It’s Your Job to Find it?

What happens when an employee quits and you can’t find her to send a final paycheck? What if a customer has a credit balance on an account and you can’t locate him to return it? Or what happens when you own a rental property and a vacated tenant doesn’t leave a forwarding address for you to return the rental deposit?

These are all examples of unclaimed property, which can be a risky area for business owners who aren’t aware of their obligation to account for it. As of 2020, there is an estimated $49.5 billion in unclaimed property in the United States. The top states for unclaimed property are New York, Massachusetts, Nevada, Rhode Island, Virginia, California and Connecticut.

As states become increasingly aggressive to look for new sources of revenue, unclaimed property examinations are also on the rise, which could result in big penalties.

What is unclaimed property?

Unclaimed property laws were created to protect owners who are vulnerable to the loss of their property, which can be intangible (uncashed paychecks, stocks) or tangible (the contents in a safe deposit box). You may have also heard similar terms like “escheat” or “abandoned property.” Typically, the owner of the property has had it for at least a year.

Examples of unclaimed property can include abandoned property, annuities, insurance payments, security deposits, gift cards or certificates, payroll checks, uncashed dividends, balances on a customer account, refunds, rebates – basically items of value. And there is no standard statute of limitations.

It’s your job to find it. And account for it.

As a business owner, it’s your job to capture and account for unclaimed property. The challenging part is identifying these assets so you are in compliance with regulations that vary from state to state. Also, the definition of a “dormancy period” (i.e., how long the property has been unclaimed) can be different.

If you do find unclaimed property, you are obligated to identify it (known as due diligence), notify or return the unclaimed property to the owner and, if you cannot locate the owner, remit the unclaimed property item to the state (also known as escheatment).

by Stacy Smith, CPA

How to deal with unclaimed property.

Because laws vary widely from state to state, identify the states where you have employees working. Set up a method or tool to capture information on uncollected property and a timeline for reviewing the list and sending out notifications each year. Also loop in your accountant or tax adviser to review your list of unclaimed property items.

As you expand your business across multiple states, unclaimed property can be viewed as a liability.

Growing your business requires transparency in accounting for liabilities and assets. Compliance with state rules can be confusing and often the definition of unclaimed property isn’t clear.

Do you have to pay taxes on unclaimed property?

Unclaimed property is not taxed while it is filed as unclaimed. However, when it is claimed, the property may be officially recognized as taxable income, which is another reason to pay attention and have an understanding about the unclaimed property you must account for.

If you are non-compliant with correctly reporting unclaimed property, the penalties can be painful.

Case in point: A recent audit of a restaurant owner with multiple locations resulted in a $3 million initial assessment, including interest and penalties. Depending on the specific state, you can expect to pay significant interest approaching 20% per year and hefty penalties. If you are audited, some states will go back a decade or more looking for unclaimed property. If a business cannot provide records, estimates will be used that can greatly increase the assessment amount.

If you are not compliant, there is still hope. Most states offer voluntary disclosure agreements that offer amnesty from interest and penalties if you come forward and bring your business up to date. However, these only apply if you enter an agreement before you get audited. S

STACY SMITH, CPA, is a shareholder with Mize Restaurant Group (formerly Mize Houser & Company), a full-service accounting firm that has provided the Elevanta Accounting & Payroll Solution for FBS members.

One topic: 10 facts Restaurant Reopenings

1

Seventy-six percent of people do not have a problem

with restaurants offering a limited menu upon reopening.

2

If curbside pickup is an option, 50% of Gen Z

consumers are willing to try out a new restaurant.

3 The CDC has confirmed that coronavirus cannot be

spread through food, but only 62% of consumers

believe that cooking food kills the virus.

4

Nine out of 10 QSR operators say food trends such

as drive-thrus and condensed menus are either as important or more important than before the pandemic.

5

There was a 23% increase between May and August of

diners who ate inside a restaurant.

6

Forty-three percent of consumers dislike having to view

contactless menus online. 7

More than three-fifths of consumers agree that restau-

rant food is a treat/escape from worrying about COVID-19.

8 The majority of respondents in a recent Toast

survey – 64% – reported that seeing staff take safety

precautions and wear personal protective equipment will be most important to the dining experience as restaurants resume on-premise service.

9

Thirty-five percent of consumers would pay $2-$5 more

per bill at a restaurant if it helped increase their level of safety.

10

Over half of diners agree that the quality of food

is the most important factor when deciding what restaurant to order from.

LOOK

LISTEN READ

Look, Listen, Read is a quarterly compilation of some of the most highly rated and reviewed apps, podcasts, books, websites and other resources. FBS does not support or endorse the use of these tools, which merely serve as a guide to exploring a new level of knowledge and productivity for your business.

1The Order Up podcast, brought to you by the National Restaurant Association, brings you stories from behind the research and the policy during this time of challenging decisions. Join Order Up each Friday for stories from association leaders and those in the restaurant industry, backed by research and policy. Order Up shares conversations about the recovery ahead of the industry, informed by the latest data. You’ll leave with an understanding of the current issues and insights into the best business practices.

2“Setting the Table: The

Transforming Power of Hospitality in Business”

is a landmark, bestselling business book and a fascinating behind-the-scenes history of the creation of author Danny Meyer’s most famous eating establishments. “Setting the Table” is a treasure trove of valuable, innovative insights applicable to any business or organization.

3The journey to success is different for everyone. The obstacles we overcome along the way are often what make us who we are. Come along as we travel the paths of the most influential people at United Wholesale Mortgage, one of the fastest-growing companies in the country, through the Power Forward podcast. Their stories will inspire you to power forward in all that you do. 4 Over the course of 20 years, Napoleon Hill researched the most prominent men of his day for his book “Think and Grow Rich.” Turns out these men all shared 13 common habits that made them successful. Hill published his findings in 1937. Today, this classic read is considered the forerunner of self-help books. The biggest takeaway is you must have the right state of mind to become successful. Hill breaks down the exact steps needed to develop a winning mindset.

5Striven: All the power of enterprise software, designed specifically for small to midsize businesses. Finally, you don’t need a huge budget to get everything your business needs to run more effectively.

6NetSuite software is an online service that enables companies to manage all key business processes in a single system. Companies use NetSuite for enterprise resource planning and to manage inventory, track their financials, host e-commerce stores and maintain customer relationship management systems.

7Bestselling author Rachel Hollis takes on all the challenges entrepreneurs face in her podcast RISE. Hollis interviews other entrepreneurs and offers applicable advice and tactics for running your business better or being a better businessperson. By listening to the RISE podcast, you’ll learn how to kick that nasty procrastination habit or how to change your mindset to be more positive.

8Gusto makes your company’s payroll, tax and benefits processes more efficient. In addition to managing online employee onboarding, Gusto handles new-hire reporting and all local, state and federal tax filings; automates deductions for benefits and workers’ comp payments; and emails digital pay stubs to employees.

9“Who Moved My Cheese?” uses a simple parable to reveal profound truths about dealing with change so that you can enjoy less stress and more success in your work and in your life. Most people are fearful of change, both personal and professional, because they don’t have any control over how or when it happens to them. Since change happens either to the individual or by the individual, Dr. Spencer Johnson, the co-author of the multimillion bestseller “The One Minute Manager,” uses a deceptively simple story to show that when it comes to living in a rapidly changing world, what matters most is your attitude. S