The Law of the Land

As a business advisor, CPAs must know state unclaimed property laws and requirements.

Dormant bank accounts, uncashed checks, unused balances on gift cards, the contents of abandoned safe deposit boxes, and stocks and other securities. These are all common examples of unclaimed property. Their uniting thread is what happens to each type of property when the holder is unable to locate the property owner after diligent efforts—namely, attempting to communicate with owners at their last known addresses and trying to locate property owners prior to turning the property over to the state treasurer.

You see, abandoned (unclaimed) property is tangible and intangible property owned by someone, but held in the custody of another, and Illinois law requires it all to be reported and turned over to the Illinois treasurer.

Under the Illinois Uniform Disposition of Unclaimed Property Act, the governing Illinois law, the state treasurer takes custody of unclaimed property and makes further attempts to locate the rightful property owner.

The law also establishes abandonment periods. Typically, the general period of abandonment is five years. However, some types of property have longer or shorter abandonment periods. For example, unclaimed wages, payroll, or salary have a one-year period of abandonment, while travelers’ checks—assuming anyone still uses them— have a 15-year abandonment period.

While unclaimed property laws are not tax laws, tax departments at many organizations take on responsibility for unclaimed property record-keeping and reporting. It’s also worth noting that local governments are not exempt from unclaimed property reporting requirements. CPA advisors to businesses and local governments need to be especially aware of these requirements, because a failure to properly document and report unclaimed property can raise significant liabilities.

Unclaimed property reporting has become an increasingly important topic because the state treasurer has proposed legislation that could make significant changes to current unclaimed property reporting requirements in Illinois. To little surprise, some of the proposed changes have generated concern within the business and practitioner community. As I write this column, bill HB 2603 has not moved forward, but representatives of the treasurer have advised that they wish to move forward, either in HB 2603 or another bill.

HB 2603 proposes eliminating the current business-to-business exemption from unclaimed property reporting. Many years ago, the Illinois General Assembly recognized that businesses dealing at arms-length don’t usually end up with unclaimed property and enacted the exemption. This exemption has worked well over the years and has allowed the treasurer to avoid the types of disputes the business community and unclaimed property custodians have become embroiled in around the country.

HB 2603 also aims to shorten the presumptive abandonment period for certain types of property to three years, creating more— and more frequent—reporting burdens. An additional reporting burden would come by way of HB 2603’s intention to modify the treatment of gift cards and gift certificates, even though there’s no indication that current reporting requirements are inadequate or ineffective.

Statutes of Limitation – Section 23.5 of the current law provides that the treasurer has five years after a report has been filed in which to issue a notice of deficiency. Section 610(b) of HB 2603 expands that limitations period to 10 years, which seems excessive in our view.

The proposed legislation also would authorize the treasurer to contract with third-party contingent fee auditors to conduct audits of Illinois-based businesses on behalf of the treasurer, which is currently forbidden. Current law recognizes resource limitations of the treasurer by authorizing the hiring of such auditors to conduct out-of- state audits. In my estimation, any fears of a possible constitutional infirmity created by disparate treatment of in-state and out-of- state audits is misplaced.

Unclaimed property reporting is an area that’s sometimes overlooked by businesses and governments, but a failure to fulfill reporting requirements can result in significant liabilities. In other words, get to know our state’s unclaimed property laws and reporting requirements now—and stay abreast of what’s to come.