This content was published prior to the merger of equals between BKD and DHG on June 1, 2022. See all FORsights for the most up-to-date articles, webinars, and videos.
California’s New Unclaimed Property Disclosure
For the first time, the California Franchise Tax Board (FTB) has a disclosure related to a taxpayer’s unclaimed property liabilities that’s new for the 2021 income tax return filings. Applicable returns with the new disclosure include the corporation franchise/income tax return, partnership return, and LLC return. All 50 states have unclaimed or abandoned property laws. These laws govern the disposition of unclaimed property, which eventually can become property of the state (typically referred to as escheatment). Unclaimed property can be tangible or intangible property due and owing to a third party where there has been no contact with the owner for a specific period (the dormancy period). The dormancy period is the time during which property remains unclaimed before becoming escheatable.
When the dormancy period has passed, the entity legally responsible for the obligation to the holder is required to perform due diligence and make an attempt to locate the owner of the abandoned property prior to escheatment.
Specifically, the following questions will be added to the corporate, partnership, and LLC tax returns:
- Has this business entity previously filed an unclaimed property Holder Remit Report with the State Controller’s Office? [Yes/No]
- If “Yes,” when was the last report filed?
- Amount last remitted?
The FTB can share information from the tax returns with the California State Controller’s Office (Controller). This information sharing will allow the Controller to identify nonfilers for unclaimed property obligations or taxpayers that have underreported their unclaimed property. Taxpayers should take great care in what is reported for the disclosure questions, as it is likely that audit and enforcement activity will increase. Taxpayers should evaluate their California unclaimed property obligations in advance of the tax disclosure. California does not currently have a formal voluntary disclosure program for unclaimed property. It is possible that a bill to establish a program will pass in the next legislative session.
If you have questions, please contact your BKD Trusted Advisor™ or submit the Contact Us form below.