In this article, we discuss what unclaimed property is and new California updates that taxpayers should be aware of.

What Is Unclaimed Property?  

Before we discuss the new unclaimed property updates in California, it is important to have a clear understanding of what unclaimed property is. All 50 states currently have unclaimed property (sometimes also referred to as escheat) legislation. Simply put, unclaimed property is when a company has an outstanding debt that has not been claimed by the rightful recipient. When this happens, the state will help recover it. This subsequently creates a huge hassle for the companies.

Unclaimed property is typically seen in banking, where an account will go delinquent if there is no activity. The bank will then try to find the account holder, but if they are not able to they still have to do something with the funds. They turn them over to the state for safekeeping on behalf of the account holder. The state will publish lists of unclaimed property that people can check. Eventually, if the person is not found, the state gets to keep the money. We also see this in non-banking situations with companies and payroll checks. Imagine you get a check from your company for $35. Maybe it is your last check from the business and you never cash it in because you lose it. Technically, your employer can’t just void it and keep the money. They need to make multiple attempts to try and get it to you. The onus is on the business to make multiple attempts to contact the rightful owner. If that isn’t successful, they need to send it to the state as unclaimed property. As you can imagine, from a business’s standpoint, trying to keep track of such items can be quite cumbersome. “Debts” like this can often pile up for years – which can create a problem for a company if the state ever comes out to audit.

According to NBC, California currently holds $9.3 billion in unclaimed property and is urging residents to check if they have a claim.

Here is a link in California where you can see if you are owed any money, as well as some more information regarding unclaimed property. There is no time limit or fee for filing a claim, and some of the simpler claims can be filed in as little as two weeks.

California Unclaimed Property Updates

The California Franchise Tax Board (FTB) is requiring certain business taxpayers to report their unclaimed property compliance when filing their 2021 business tax returns. The legislation authorizes the FTB to share the information with the State Controller’s Office (SCO) to aid in its enforcement of unclaimed property laws.

California A.B.466 was enacted on July 16, 2021 and amends the state’s income tax disclosure provisions to allow the FTB to provide the SCO with certain taxpayer information. Following this authorization, the FTB announced that it would add the following questions to its corporate, partnership and LLC tax returns:

• Has this business entity previously filed an Unclaimed Property Holder Remit Report with the State Controller’s Office?
• If you answered with a yes, when was the report filed?
• What was the amount last remitted?

According to the bill analysis, there has been low reporting under the current unclaimed property laws, and as such, “..the SCO estimates that businesses could be holding more than $17.6 billion in unclaimed property.” The SCO believes that compliance with the state’s unclaimed property reporting laws is potentially as low as 2% of all businesses.

What Should You Do Next?

If you are a California business that has not filed an unclaimed property report, you may want to take an internal review to see your potential liability. Just like with all tax compliances, we recommend being proactive to see what your liabilities may be.