Does Your Business Have Unclaimed Property… and Possibly Large Penalties?

By Misty Shore, CPA, MST, Tax Senior

UPDATE March 22, 2023 – The California Voluntary Compliance Program (VCP) is open as of today, which allows unclaimed property holders to determine if they qualify for a waived interest assessment. Holders must complete a VCP Interest Form to receive an application. After submitting a completed application form, approved holders that meet all program requirements, which includes completing a training program and meeting reporting deadlines will be eligible for waived interest (12 percent) on past-due unclaimed property reported under the program. For additional information and to complete an interest form, visit: California Voluntary Compliance Program.

Many businesses are holding “unclaimed property” and do not realize it. As a source of additional revenue, states are more activity enforcing their unclaimed property laws and related penalty provisions. Compliance rates are very low so businesses need to be aware of their state’s rules so they can be compliant to avoid penalties and (potentially large) unclaimed property remittance payments. To increase awareness and compliance, California recently added several questions to all business entity tax returns specifically addressing the filing of unclaimed property reports.

What is Unclaimed Property?

Generally, unclaimed property is property being held by a third party for an extended time period waiting for its owner to claim it. Nearly every business entity has unclaimed property as it includes uncashed payroll and vendor checks, customer deposits, or customer overpayments.

What Does a Business Do With Unclaimed Property?

Each state has issued guidelines for escheatment (or turning over of unclaimed property to the State) for its residents’ unclaimed property. Once turned over to the state, the state will attempt to locate the property’s owner. This is often done with a website listing unclaimed property being held by the state. For example, the California website is: California Unclaimed Property

States generally require the property holder to regularly review records for unclaimed property, perform due diligence to reunite the owner with their property, and finally to escheat funds to the state of the last known address of the property owner. If there is no known address for the owner, or the owner themselves is unknown, then the property will be reported to the state in which the holding business is incorporated or domiciled. Thus, a business in California can potentially be filing Unclaimed Property reports in all 50 states.

Review of Records

At least annually, businesses should review their books and records to identify and classify types of unclaimed property. There are many types and sources of unclaimed property, but the most common are uncashed payroll and vendor checks, customer deposits, and credit balances on customer accounts. For uncashed checks, a company can simply review its listing of stale dated checks (checks older than 180 days). Businesses commonly void vendor checks as they become stale, which in some accounting systems effectively eliminates the audit trail of the transaction for internal tracking purposes. During an unclaimed property audit, this can be an issue if there is no documentation to show why the check was voided (duplicate payment, wrong amount, replacement issued, etc.). With no documentation, auditors will often conclude the item is unclaimed property to be remitted to the state and will make extrapolations to earlier years based on this finding.

Businesses can review their accounts receivable aging for inactive customers with credit balances and their accounts payable aging for inactive vendors with debit balances.

Once a business has identified the unclaimed property that it is holding it should sort by category and by the state of the last known address of the owner. Each state has its own schedule of dormancy periods for various property types that determines how long the property can be held before it must be remitted to the state.

Depending on the state, dormancy periods run from date of the uncashed check, or from the last date any business was done with the customer or vendor depending on the state.

Due Diligence

Before property can be reported and remitted, most states require that the holder attempt to reunite the owner with their property. This may be in the form of a phone call or a letter. Some states require that letters be mailed to the last known address, some states even require certain language be included. Any due diligence letters (whether returned to sender or filed out and return for claiming of funds) should be saved as proof of due diligence.


The reporting process in California requires two reports: a preliminary filing (due in June) and a final report is filed in November. Preliminary filing allows states to locate property owners and notify them that a business has their property. When a final property filing is made, the funds are then escheated over (paid) to the state.

Some years, a business will not have any items to file in a state. In that case, check to ensure the state does not require negative reporting, which is a required filing showing no funds to escheat for the period.

My Business Has Never Reported Unclaimed Property, Where Do I Start?

The majority of states do not have a statute of limitations for unclaimed property. If you discover during your review of unclaimed property that you have a significant amount of unclaimed property for a state, check to see if the state offers a “Voluntary Disclosure Program”. Voluntary Disclosure Programs allow an entity to report past due unclaimed property, usually with waived or reduced interest and penalties and may also offer audit protection.

The California Legislature recently passed A.B. 2280, allowing the state controller to establish a Voluntary Compliance Program which would waive the 12 percent annual interest charged on past due assessments. For additional information and to complete an application, visit: California Voluntary Compliance Program.

Another option when items are past due is to simply file the items on the current year unclaimed property report and pay the interest and penalties associated with the late filed items. For states in which the company holds very little in unclaimed property, this may be an option. Be aware, however, that when a state selects a company for an unclaimed property audit, occasionally other states will join in the audit. By filing late in a state with small unclaimed property holdings, a business may still open itself up to a multi-state audit, including those states for which their unreported filings may be substantial.

Preventing Unclaimed Property

Unclaimed property headaches can be easily avoided. Make it a policy to review uncashed check listings and begin a program of contacting customers and vendors before the check becomes stale dated. For checks that are stale dated but have not yet reached the dormancy date, start your contact with the owners as soon as possible. Most important, keep written records of your efforts. The best way to prevent unclaimed property headaches is to prevent unclaimed property.

Please contact us for further information regarding unclaimed property tracking, filings and compliance.