News & Publications
Washington Unclaimed Property Amnesty Expiring
Unclaimed property is money or intangible property owed to an individual or business, they have yet to take possession of. Property is considered unclaimed after it has been held for a period of time with no owner contact and an effort has been made to locate the owner. Payroll becomes stale-dated after one year and business to business checks vary by state, but typically fall in the 3-5-7 year range. The majority of unclaimed property, some tax professionals argue up to 95%, is due to outstanding checks.
If unclaimed property is pursued thoroughly but no resolution can be met, the property is turned over to the state where the state government earns interest on the funding, but cannot directly use the unclaimed property. Consider the accrued interest as storage compensation. Currently there is roughly $58 billion in unclaimed property held by the United States’ various government agencies.
If a company is audited with a concentration on unclaimed property there are two areas of focus. The primary focus of an audit that reviews unclaimed property is outstanding checks. The easiest way to identify this discrepancy is through investigation of the accounts payable. The issuing company is responsible for pursuing each check to vendors, partners, employees, etc., to ensure each check is cashed. If a check remains uncashed the state views this as the issuing company holding money that does not belong to them, even if that is not the case. The secondary focus of an audit would be improper balances in the company’s receivable accounts. If there is a negative balance it is a major red flag. The unclaimed property audit is considered “low-hanging fruit” for states; it is easy to identify and easier to penalize.
Unclaimed property reporting is required by: banking and financial institutions, business associations (regardless of location), utilities owned or operated for public use, and legal entities. The state of Washington’s Department of Revenue has posted a notice for unclaimed property holders that by July 1, 2017, the current amnesty period for unclaimed property within the state is expiring. As stated by one of the auditors, KPMG:
“Under the amnesty provisions, the Department must waive penalties and interest on amounts payable or property deliverable if before November 1, 2016, the holder completes an application for penalty and interest waiver, files a report that includes all property for which penalty and interest waiver is requested, and pays and delivers all amounts and property identified in the report. The amnesty does not apply to amounts or property that were paid, delivered, or reported to the Department before July 1, 2015.”
The aforementioned waiver application must be submitted by October 31, 2017 to be considered for eligibility. Beginning July 1, 2017, the following penalties will be assessed in the state of Washington:
- 10% penalty on property paid late
- 10% penalty on audit findings
- 5% penalty on all reports that are not filed electronically
- 5% penalty on all reports that are not paid electronically
- 5% additional penalty if bill is not paid by due date
- $100 per day civil penalty (up to $5,000) for willful failure to file a report (reports that are paid, but no return is filed) or send written notification to owners as required
The good news is that there are waivers available! A tax waiver indicates a specific person, business or corporation does not owe any personal property taxes for a specified tax year. Essentially, a waiver allows an organization to admit guilt without fear of persecution. A company will approach the state, with supporting documentation, and say “we owe this money to these people for this reason.” The state will not penalize the company because they would much rather deal with the issue and have people come forward than use extraneous resources to identify discrepancies and penalize an organization for a situation that may be out of their control. The state can look back as far as 10 years.
Wesley Sprecher
Tips for the Taxpayer
The best way to avoid finding yourself in a situation with penalized unclaimed property is to keep up with your organization’s bank reconciliation, identify outstanding checks that have not cleared, and follow up with the recipient as to why the check has yet to clear.
For More Information
If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Events at www.allynintl.com.
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Allyn handles filings of annual unclaimed property matters on behalf of our clients. Our tax team will approach states on behalf of the client, after conducting research for supporting documentation, and request an application. Roughly half of the states require an annual filing regardless of if there is unclaimed property to be reported or not. Let us help you find property that belongs to you.
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