Article
Unclaimed property - beware of patient credit balances
Oct. 23, 2015
Continuously looking for new sources of revenue, states have increased their enforcement of unclaimed property laws. Due to the potential for significant patient credit balances, organizations in the healthcare field may become targeted for unclaimed property audits.
What is unclaimed property?
Unclaimed property, in general terms, is property the business has in its possession that has not been claimed by the true owner. Examples of unclaimed property include patient credit balances, uncashed payroll checks, uncashed vendor checks, unidentified remittances, self-insurance payments, uncashed stock or dividend checks, and uncashed debt/interest checks.
When these items sit on companies' books for a long period of time as old credit balances or outstanding checks on bank reconciliations, occasionally companies simply "clean up" their financials and reverse these items into income. This practice is illegal. State law requires all businesses to report unclaimed or abandoned property and remit it to the state. The state government acts as a custodian and holds the property until it is delivered to the rightful owner.
Each type of unclaimed property has its own specified period of inactivity (referred to as a "dormancy period") before companies have a reporting requirement. Typical dormancy periods are one year for payroll items and three to five years for other outstanding checks or credit balances.
Example: Wisconsin dental practice
Credit balances on patient accounts are common, especially in the healthcare industry where the patient, insurance company, and sometimes government programs will all be making payments on one account. In this example, a patient agrees to accept services for which the dental practice will charge $550. The dental practice provides an estimate of insurance benefits to the patient indicating the insurance company will likely pay $350 of the total charges. The patient pays $200 at the time of service, and a claim is filed with the insurance company. The company subsequently issues a check to the dentist for $370, which results in a $20 credit balance due to the patient. If this credit balance is left unresolved for five years, the dental practice must include the credit balance in their annual unclaimed property report.
How do I comply with the reporting requirements?
Below is a basic outline of the steps in filing unclaimed property reports. As all fifty states have their own requirements and due dates, we advise you to contact your Baker Tilly representative for assistance if you have not previously filed an unclaimed property report.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.