As companies begin preparing for the 2026 unclaimed property compliance season, it is important to recognize that internal administrative capacity and resource availability do not always align with compliance obligations. System updates, corporate transactions, employee attrition, scheduled time off and other unexpected operational demands can create challenges that affect a company’s ability to meet unclaimed property reporting deadlines.
When a company finds itself in the position of reporting unclaimed property after the applicable due date, it is important to understand the potential risks and outcomes in order to determine the most appropriate course of action.
Whether a company files a report after the due date or includes past-due items in a subsequent annual filing, understanding the associated risks is critical. Unlike many other forms of regulatory reporting, enforcement actions and assessments related to late or past-due unclaimed property reporting vary significantly by jurisdiction and continue to evolve. There is little uniformity among the states in how these matters are addressed.
Unclaimed property laws apply to a wide range of transactions across jurisdictions where vendors, customers or employees are located. Additionally, the state in which a company is incorporated may also influence reporting requirements, filing options and enforcement exposure.
Limited options
One of the most compelling reasons to report unclaimed property in a timely manner is to avoid drawing regulatory scrutiny. In addition to potential interest and penalty assessments, late reporting may trigger a multi-state audit.
Regardless of whether the audit findings are material or not, the time and resources required to complete an unclaimed property audit can be substantial. These examinations often extend three to five years, or longer, and require significant internal coordination and documentation production. Filing late or including past-due property in an annual filing can make it easier for states to identify potential noncompliance.
Once a company has been identified by a state for potential noncompliance, the available options for mitigating penalties or avoiding an audit may be limited.
If the past-due property amount is relatively small, a practical approach may be to report the property and request a waiver if the state issues a penalty or interest assessment. However, when the amount involved is material, or when the state involved is known for strict enforcement practices, companies may consider contacting the state to determine whether a voluntary disclosure agreement (VDA) program is available. These programs typically allow companies to come into compliance while obtaining waivers of interest and penalties.
Choosing not to report past-due property is not a viable option. Willful failure to report unclaimed property as required by law can expose a company to additional penalties and interest if the issue is later identified during an audit.
Solution
An effective unclaimed property reporting process requires regular review of company records to identify aged liabilities to identify items that were not resolved through normal business operations within an expected timeframe (i.e., dormancy period). Once these liabilities reach the applicable dormancy period (generally three or five years depending on the state), they must either be resolved with the owner of record or reported to the appropriate state as unclaimed property.
Once the reporting deadline has passed, the liability legally becomes custodial property of the state in which the owner—whether a customer, vendor or employee—was last known to be located as reflected in the company’s records.
Fortunately, many resources are available to help companies strengthen and streamline their unclaimed property compliance processes. Companies may choose to license specialized reporting software to maintain the reporting function internally or outsource the process to experienced unclaimed property service providers.
Options are available to address significant past-due liabilities, as many states are willing to work with companies seeking to resolve past-due reporting obligations. Some jurisdictions may waive interest and penalties for companies that have not previously filed unclaimed property reports, allowing them to enter into compliance. Other jurisdictions offer more formal voluntary disclosure agreements or similar compliance programs for companies with more significant liabilities.
To learn more about your company’s options for ongoing unclaimed property reporting, and/or addressing past-due unclaimed property issues and the help that the team at Baker Tilly can provide, or to discuss any unclaimed property compliance questions, please contact a member of the Baker Tilly Unclaimed Property Management team.
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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.