2016
Voluntary Disclosure of Unclaimed Property: Some Considerations
Companies not in full compliance with state unclaimed property reporting requirements have the opportunity to participate in voluntary compliance programs that are offered by many states. These programs allow holders of unclaimed property to resolve past unclaimed property liability for a defined “lookback period,” in exchange for a state’s agreement to forgive interest and penalties.
Voluntary disclosure programs have benefits, risks and complications for holders. The most obvious benefit is to reduce a company’s exposure to unclaimed property audits. Many states retain third party auditing firms to conduct unclaimed property audits on a multistate basis. Because third party auditing firms generally work on a contingent fee basis, they have an incentive to maximize the number of states they represent in an audit as well as the amount of property that a holder is required to pay over to the states. Participation in voluntary disclosure programs reduce the risk of audits because, once a state accepts the amount that a company voluntarily reports, the state generally will agree not to audit a company for the time period and types of property covered by the report.
Before entering into a voluntary disclosure of unclaimed property, a company should consider that there are risks and complications as well. Each state has its own policies and practices on voluntary disclosures for unclaimed property. Therefore it generally is necessary to participate in voluntary disclosures on a state-by-state basis, which adds to the time and complexity when a company has unresolved unclaimed property liability in multiple states.
Some states also require an extensive amount of information to support a voluntary compliance report before the state will accept the amount reported by a holder. Holders participating in these voluntary disclosure programs sometimes feel like they have been subjected to an audit due to the amount of information and documentation requested.
There also is a risk that a state may not accept the level of detail, amount of information, or the amount reported by the company under a voluntary disclosure program. This can lead to disputes and even litigation. In the worst case, there have been cases where states do not accept a holder’s voluntary reporting and elect to initiate an audit.
The bottom line is that companies with unreported unclaimed property should consider entering into voluntary disclosure agreements with the states. Before doing so, however, companies should carefully weigh the pros and cons and approach the voluntary disclosure process in a strategic and informed manner.
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