Companies doing business in Pennsylvania are being subjected to increased scrutiny over how they handle unclaimed property. Many companies are either unaware of reporting and due diligence requirements or are misunderstanding their obligations to report unclaimed property to the state. Companies are often unaware that they might even possess unclaimed property.
Recent enforcement efforts by Pennsylvania have been on the rise and Pennsylvania has outsourced audit activity to Verus Analytics, LLC, a third-party auditing company specializing in unclaimed property audits and assessments.
To begin the process, Pennsylvania’s Treasury Office is matching up entities registered to conduct business in Pennsylvania with businesses that have never filed an unclaimed property report and sending notices of self-audit. If the business has never filed an unclaimed property report, Pennsylvania is currently requiring companies to review their records for at least the prior 10 year period to determine if there is any unclaimed property to report. The company must then work with Verus Analytics, LLC on how to remediate prior years, when older financial records are difficult or impossible to produce.
If the company fails to satisfactorily conduct the self-audit, Pennsylvania will then conduct an on-site audit of your records to determine what assessment, penalties and interest might be warranted to bring your company into compliance. As a result, renewed compliance efforts are imperative.
Who Must Report
According to the Pennsylvania Unclaimed Property Act, financial institutions, insurers, utilities, business associations, medical facilities, sole proprietors, fiduciaries, courts, public officers, government entities and all legal or commercial entities must file a report if they have reportable unclaimed property.
What Must Be Reported
If you are a holder of unclaimed property and have held the property for the required dormancy period, it must be reported. Unclaimed property can be tangible property such as jewelry, art, collectible coins, electronics, tools and numerous other items. Unclaimed property also includes intangible property such as stocks, bonds, bank accounts, payroll, pension checks, unclaimed discounts and customer account credits, for example. Writing dormant accounts off into income does not negate the obligation to report and deliver unclaimed property.
The dormancy period for most property types is three years, meaning no contact has been made with the owner for a period of three years or there has been no interest indicated by the customer on the account for three years. After this time, the account must be reported as unclaimed property. There are some exceptions to the three-year period based on the type of unclaimed property that should be reviewed carefully to determine if the dormancy period has been established.
Due Diligence Requirements – Requirements to Notify Property Owners Before Transfer of Unclaimed Property to the State Treasury
In the fall of 2016, a new “due diligence” requirement was added to Pennsylvania’s unclaimed property law. Holders of reportable property valued at $50 or more are now required to send notice to the owner of the property no more than 120 days and no less than 60 days before the holder’s unclaimed property report is to be submitted to the Treasury Department, if they have an address for the owner that is not known to be inaccurate. The filing deadline is generally April 15th each year and the deadline for sending the required notices to owners is generally February 15th.
The required notice to the owner must include (1) a description of the property, (2) a description of the property ownership, (3) the value of the property, if known, and (4) contact information for the holder. The written notice must be sent by first class mail unless the owner has previously agreed to a method of electronic notice. Holders are required to submit an affirmation of compliance with the “due diligence” requirements with their unclaimed property reports. No costs or fees may be imposed on property owners with respect to issuance of the required notices.
If a property owner reaches out to the holder before the unclaimed property report is filed, the property will not be reportable as unclaimed property if it is returned to the owner or the owner “indicates an interest in” the property.
If property cannot be refunded directly to the owner, a holder must first remit it to the state of the last known address of the owner. If the owner’s address is unknown (or is in a jurisdiction without an applicable unclaimed property law), the property is sourced to the holder’s state of domicile. This can lead to significant liabilities for companies that have not accounted for past unclaimed property and no longer have complete accounting records.
Fines and Penalties
Holders are subject to fines and penalties for not reporting unclaimed property. Treasury may charge holders:
- $200 per day for the cost of an audit that reveals reportable property (not to exceed the value of that property).
- Up to $1,000 per day (not to exceed $365,000) for failing, without proper cause, to report and deliver unclaimed property. This penalty starts the day after the report was due and continues until a report is submitted (may be waived for good cause).
- A reasonable estimate of the amount of reportable unclaimed property, if a holder’s records are inadequate or insufficient to prepare a report.
Noncompliance with Pennsylvania’s unclaimed property law is now even costlier for businesses, so it is critical that they understand responsibilities under the law. We have worked closely with Verus Analytics, LLC and clients on conducting the self-audit process and remediating prior year exposures, along with advising clients on how to handle unclaimed property on a going forward basis to avoid these exposures.
If you have any questions or would like more information on the issues discussed above, please contact Joseph R. Kane, Esquire, at email@example.com or call (412) 355-0200.