Tax Decoded | Fall 2021
Reviewing the Revised Uniform Unclaimed Property Act
The newly amended RUUPA has major implications for businesses and the CPAs that advise them.
Keith Staats, JD
Executive Director, Illinois Chamber Tax Institute
Deciphering Today's State & Federal Tax Law
Public Act 102-0288, signed into law by Gov. J.B. Pritzker in August, amends the Revised
Uniform Unclaimed Property Act (RUUPA), and while RUUPA isn’t a tax act, unclaimed
property compliance is handled by the tax departments within many companies. RUUPA
has tax-like features: periodic reports are required to be filed with the Illinois treasurer, the
treasurer has authority to audit businesses to ensure compliance, and there’s the possibility
of penalties in cases of improper reporting or failure to report.
Unclaimed property consists of intangible or tangible property of someone else held by
businesses or governmental bodies without any contact from the owner for the statutory
time period. Examples of unclaimed property are customer overpayments, utility security
deposits, uncashed payroll or dividend checks, unpaid refunds, bank accounts, contents
of safe deposit boxes at financial institutions, stocks and bonds, and insurance payments.
The statutory period after which property is deemed abandoned under RUUPA varies by
the type of property, but the most common abandonment period is three years. RUUPA
outlines the manner in which holders of unclaimed property are required to attempt to
contact the owners. If attempts to contact owners of unclaimed property are unsuccessful,
the business or governmental entity is required to report and turn over the property to the
treasurer. The treasurer holds the property on behalf of its rightful owners and attempts to
reunite the property with them and maintains a searchable online database for unclaimed
property. (I recently checked the database and claimed $12 from AT&T that was some type
of overpayment from an old telephone account at a previous residence.)
A company can’t keep unclaimed property that’s subject to RUUPA. For example, a
company can’t keep an unclaimed refund owed to a customer by converting it on its books
to additional income after a certain period of time.
For many years, unclaimed property reporting wasn’t a significant issue for most Illinois
businesses, other than financial institutions and utilities, because the Illinois unclaimed
property law prior to RUUPA contained an exemption for business-to-business transactions.
The rationale for the business-to-business exemption was that there was no need for
government to intervene because businesses know to whom they owe money and they
know from whom they’re owed money. However, the business-to-business exemption was
eliminated upon the adoption of RUUPA effective Jan. 1, 2018.
Two other provisions of RUUPA make unclaimed property reporting a greater issue for
businesses than under the prior law. First, RUUPA was given retroactive effect, meaning the
first report filed with the treasurer after the Jan. 1, 2018 effective date was required to include all items of property that would’ve been required to have been reported if RUUPA had been in effect for five years prior to Jan. 1, 2018. This includes the business-to-business transactions that had been exempt from reporting prior to the enactment of RUUPA.
Second, RUUPA effectively has no statute of limitations period for audits by the treasurer. The law has what it calls a 10-year statute of limitations, but the statute of limitations is only for items that have already been reported to the treasurer. There’s no statute of limitations for anything that hasn’t been reported. The detrimental impact of this essentially unlimited statute of limitations on unclaimed property holders is evident when it’s combined with the treasurer’s ability to use estimates in determining liability in cases where the treasurer concludes that the business’s records are insufficient.
Consider the following example: RUUPA became effective Jan. 1, 2018 with a five-year retroactive period and a repeal of the business-to-business exemption. Business A is audited in 2022. The auditor requests documentation back to 2013. Business A only has detailed records for the latter part of the audit period. In reviewing those records, the auditor determines that Business A has failed to report some business-to-business transactions. Because there are no detailed records for earlier periods, the auditor develops an estimated reporting shortfall for the earlier periods. If the reporting mistakes in the later years are significant, the assessment for the earlier periods could be substantial. Actually, the assessment could be substantial even if the mistakes aren’t significant because of the number of years at issue. Note that the further we get from the effective date of RUUPA, the more substantial audit assessments will become because the less likely it will be that businesses will have maintained sufficient records to refute an auditor’s estimates.
As I noted above, RUUPA was amended this year by SB 338. The legislation makes several changes to RUUPA, including provisions dealing with reporting requirements for financial institutions. The legislation also includes new reporting requirements for cryptocurrency, requiring holders to report “virtual currency” to the treasurer five years after the last indication of interest by the owner.
In my opinion, the most unnecessary provision of SB 338 is the new “negative reporting” requirement. This provision requires businesses to file annual reports with the treasurer to report that they have nothing to report. This requirement applies to any business with annual sales of more than $1 million, or that is publicly traded, or that has a net worth of more than $10 million, or that has more than 100 employees.
To me, the negative reporting requirement is of no value to affected businesses and is nothing more than an unnecessary bureaucratic annoyance that’ll assist the treasurer in building a database of potential audit candidates. Remember that RUUPA doesn’t have a real statute of limitations. Therefore, this negative report isn’t like filing a zero-tax return with the Illinois Department of Revenue which would begin the running of the statute of limitations.
Unclaimed property compliance, reporting, and audit defense are issues that’ll continue to grow in importance to businesses and their advisors. If you want to learn more about unclaimed property reporting, be sure to sign up for the Illinois CPA Society’s annual State and Local Tax Conference on Jan. 20, 2022. I’ll be moderating a panel discussion with the treasurer’s chief of staff and legal and accounting professionals experienced in assisting businesses with unclaimed property compliance and audit defense.