Minnesota to Ramp Up Unclaimed Property Audits

  • 12/20/2013

Minnesota to Ramp Up Unclaimed Property Audits

Unclaimed property laws have been in place in Minnesota for years, but compliance has generally been voluntary. That may be changing.

“Right now, Minnesota is trying to help holders of unclaimed property to voluntarily comply,” says Mike Herold, a tax principal with CliftonLarsonAllen. “But those that are unprepared could face substantial penalties, whether their noncompliance is intentional or not.”

The broadening definition of unclaimed property

In the past, unclaimed property was frequently thought of as inactive bank accounts, uncashed payroll checks, dividend checks, stocks, traveler’s checks, unredeemed gift cards, refunds, deposits, and rebate checks. This list is growing to include health savings accounts (HSAs), individual retirement accounts, and education savings accounts.

The Delaware approach

While some states such as Delaware have seen unclaimed property as a source of revenue, Minnesota has historically approached unclaimed property with the goal of returning the property to the true owners and has a success rate of more than 31 percent.

Many states use third party auditors to seek out unclaimed property. Much like a sales or income tax audit, these auditors spend hours, weeks, and sometimes years at a location going through records to discover unclaimed property. A Delaware audit typically lasts three to six years. These third party auditors are typically paid on a contingency fee — the more unclaimed property they discover, the more they get paid. To make an audit even more difficult, the property holder has the burden of proof to dispute a transaction from being classified as unclaimed property.

Hidden property when buying or selling a business

Many companies fail to look for unclaimed property when selling or buying a business, even though the liability can move to the new owner. This means the new owner can be held responsible for the acquired company’s unclaimed property for the past 20 years, even if the sale occurred only three months ago. Under Minnesota Statute 345.55, the state can impose a misdemeanor or gross misdemeanor charge on any person who willfully fails to render any report or perform other duties.

What to do if you receive a letter

First, understand the purpose of the letter. The intent is to give the entity an opportunity to examine its records for unclaimed property. If escheat property is found, then the holder must consider whether a voluntary disclosure agreement (VDA) program is best for them. One of the biggest worries is having records that go back far enough to establish your case and comply with the paperwork requirements.

How we can help

CliftonLarsonAllen can help you get into the VDA program and be your non-legal advocate throughout the process, from negotiating the look-back period to determining what is defined as unclaimed property.