Unclaimed Property Spotlight

Key Compliance Developments Holders Should Be Watching

As state governments continue to rely on unclaimed property as a meaningful source of revenue, enforcement activity and compliance expectations are steadily increasing. Recent developments highlight several areas where companies should remain particularly vigilant. Below are three trends that are shaping the current unclaimed property landscape and influencing how organizations approach compliance and audit preparedness.

1. Aggressive Audit Enforcement

Audit activity remains elevated across many jurisdictions, with Delaware continuing to lead enforcement efforts. As the state of incorporation for a large number of U.S. companies, Delaware maintains broad authority to examine records when property cannot be attributed to an owner’s last known state of address.

In recent years, the state has increased the frequency of audit notices and “verified report” requests issued to companies prior to statute-of-limitations deadlines. These actions are designed to preserve the state’s ability to review historical periods and expand the potential scope of examinations. Audits often involve long lookback periods and, where records are incomplete, may rely on statistical estimation methods to determine potential liability.

For holders, this environment reinforces the importance of maintaining strong historical records and having a clearly documented compliance process.

2. Statute-of-Limitations Challenges and Extended Liability Exposure

Another emerging development involves evolving interpretations of statute-of-limitations protections. Traditionally, statutes of limitation limited the time frame during which a state could assess unclaimed property liability following the filing of a report.

However, many states have taken the position that if a company fails to report a particular property type, the statute of limitations may never begin to run for that category of property. In practice, this interpretation can significantly extend the period subject to review during an audit.

As a result, organizations may face exposure for historical transactions well beyond typical record-retention periods. This trend underscores the importance of conducting periodic internal reviews to ensure that all relevant property types are properly identified, tracked, and reported.

3. Increased Scrutiny of Compliance Processes

States are also placing greater emphasis on the underlying compliance processes used by holders. Auditors and administrators are increasingly focused on whether companies have followed required procedures related to due diligence, reporting accuracy, and record retention.

Key areas receiving particular attention include:

• Due diligence mailings sent to owners prior to reporting property to the state

• Documentation of compliance activities, including proof of mailing and outreach efforts

• Record retention practices, especially for historical transactions and aging liability accounts

• Accuracy of property classifications and dormancy triggers

  
  

Failure to maintain adequate documentation can lead to additional scrutiny during an audit and may increase the likelihood of estimation techniques being applied.

Looking Ahead

The evolving enforcement environment reinforces the need for organizations to maintain proactive unclaimed property compliance programs. Regular reviews of reporting processes, internal controls, and historical records can help reduce risk and ensure readiness should an audit or inquiry arise.

As states continue to refine enforcement strategies and compliance expectations, staying informed about emerging trends will remain essential for organizations managing unclaimed property obligations.

Advisely continues to monitor developments across jurisdictions and assist organizations in navigating the evolving unclaimed property landscape. Contact eburke@adviselyllc.com for additional information.