California unclaimed property enforcement efforts increase

Unclaimed property background

All 50 states, the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands have unclaimed property statutes. Companies must regularly review their books and records to determine if they are holding unresolved amounts with vendors, customers, and employees that could represent unclaimed property. Unclaimed property is reportable after a dormancy period of one to five years, depending on the state and property type. Examples of unclaimed property include uncashed accounts payable and payroll checks, unresolved customer credit balances, abandoned bank accounts, and unused gift cards. Failure to comply with state unclaimed property law can result in penalty and interest assessments and can trigger state audits conducted by third-party audit firms.

Voluntary compliance

California is one of the only states to not offer an amnesty or voluntary compliance program. On Feb. 16, California’s legislature introduced Assembly Bill 2280, which allows the state controller’s office to establish a voluntary compliance program aimed at encouraging holders to voluntarily comply with California’s unclaimed property statute. The program allows the state controller’s office to waive 100% of interest assessed for companies that successfully complete the program. Historically, California has automatically assessed 12% interest on past-due property and has not offered waivers. The voluntary compliance program:

• Is available to companies that have not previously filed unclaimed property reports with the state controller’s office
• Includes a 10-year lookback period with a six-month time frame for completion
• Includes a waiver of applicable interest on past-due property
• Requires companies to complete unclaimed property training
• Is not available to companies currently under audit and companies that have unpaid or waived interest assessments with the state controller’s office

Certifying required compliance with California unclaimed property reporting on income tax filings

In July 2021, California amended Section 19554 of the Revenue and Taxation Code to allow the California FTB to share taxpayers’ unclaimed property compliance results with the California state controller’s office. The state controller’s office enforces California’s unclaimed property law, including the initiation of audits.

Companies are required to certify compliance with unclaimed property reporting on tax year 2021 filings with the FTB. Specifically, companies must respond to whether they have previously filed an unclaimed property report with the office and, if so, provide the last filing date and dollar amount reported.

This new unclaimed property disclosure allows the state controller’s office to enforce and generate awareness about California’s unclaimed property reporting requirements. It also might aid in identifying targets for unclaimed property audits.

Companies should review their unclaimed property footprint prior to filing California income tax returns for tax year 2021. It might be worth considering California voluntary compliance for unclaimed property if a material unclaimed property exposure exists. Taxpayers should consult their tax adviser if they have questions about California’s unclaimed property filing requirements.

Navigating California unclaimed property requirements

Combined with the certification added for income tax filings, the unclaimed property amnesty initiative puts taxpayers on notice that California is looking to increase its unclaimed property tax enforcement. California taxpayers should work with their tax advisers to evaluate the status of their California unclaimed property compliance and discuss whether the amnesty program might be right for them.