Unclaimed Property Myths Debunked: Safeguarding Your Business from Compliance Risks

Unclaimed property compliance is a multifaceted realm that often perplexes businesses. Despite its critical importance, numerous myths surround unclaimed property, contributing to misunderstandings that can lead to compliance risks. In this article, we delve into these misconceptions, offering clarity and examples to help businesses navigate the intricacies of unclaimed property more effectively.

Myth 1: "Unclaimed Property Only Refers to Cash."

Reality: Unclaimed property encompasses more than just cash. It includes dormant assets such as uncashed checks, unused gift cards, unreturned deposits, unredeemed loyalty points, and more. For instance, consider a retail store that issues gift cards. If those gift cards expire and remain unredeemed, they become unclaimed property subject to escheatment.

Myth 2: "Our Business Is Too Small to Worry About Unclaimed Property."

Reality: Unclaimed property laws apply to businesses of all sizes. The threshold for compliance varies by jurisdiction, and some states have no minimum threshold at all. Ignoring unclaimed property responsibilities can lead to penalties, regardless of your business's size. For example, a small restaurant that consistently holds unclaimed customer deposits for private events could inadvertently trigger compliance requirements.

Myth 3: "We Only Need to Worry About Unclaimed Property in Our Home State."

Reality: Unclaimed property is subject to the laws of each state where the owner resides or where the transaction took place. This means that businesses with a customer base spanning multiple states must navigate various reporting requirements. Imagine an e-commerce company based in one state but attracting customers from across the nation. They must adhere to the unclaimed property regulations of all the states they serve.

Myth 4: "We Can Keep Unclaimed Property Indefinitely."

Reality: Most jurisdictions have "dormancy periods" after which unclaimed property must be reported and remitted to the state. These periods vary by property type and state. Failing to escheat within the stipulated timeframe can result in penalties and interest. Take, for example, an insurance company holding unclaimed life insurance proceeds. Depending on the jurisdiction, they may be required to remit these funds after a certain number of years.

Myth 5: "We Don't Need to Worry About Unclaimed Property Audits."

Reality: Unclaimed property audits are becoming increasingly common, with states partnering with third-party auditors to identify non-compliant businesses. Businesses that neglect their unclaimed property responsibilities are at risk of facing audits, which can be costly and time-consuming. For instance, a manufacturing company that hasn't reported unclaimed payroll checks could find itself under audit scrutiny.

Conclusion:

Understanding the realities of unclaimed property compliance is crucial to safeguarding your business from potential risks. Debunking these myths and embracing the complexity of unclaimed property helps businesses avoid penalties, reputational damage, and unnecessary audits. By staying informed, implementing proper processes, and seeking professional advice if needed, organizations can navigate the unclaimed property landscape with confidence and compliance.

Remember, unclaimed property compliance isn't an option—it's an essential obligation that ensures your business remains responsible and accountable in the eyes of your customers and the law.