The California State Controller’s Office (SCO) estimates that only 2% of California businesses properly report unclaimed property each year. The state has increased its focus on improving holder compliance among California taxpayers, thus California businesses should expect to see increased audit activity and/or additional inquiries from the SCO.
Targeting Companies for Audit
Effective for corporate income tax returns due in 2022, the Franchise Tax Board (FTB) began asking unclaimed property-related questions on certain business entity tax returns, including:
Form 100 - CA Corporation Franchise or Income Tax Return
Form 100S - CA S Corporation Franchise or Income Tax Return
Form 100W - CA Corporation Franchise or Income Tax Return – Water’s Edge Filers
Form 565 - Partnership Return of Income
Form 568 - Limited Liability Company Return of Income
Filers are required to answer whether their business entity previously filed an unclaimed property Holder Remit Report with the SCO, and if so, when the last report was filed and the remitted amount. The FTB may share the taxpayer’s answers, entity status and revenue range with the SCO. As a result, the SCO may then identify companies for audit that are not in unclaimed property compliance.
Be Prepared! Review our California unclaimed property checklist.
Fill out the form below to download the California unclaimed property checklist.
Also known as abandoned property, unclaimed property includes items that a business owes to its employees, customers, vendors, creditors or shareholders that have passed certain prescribed periods of abandonment (dormancy periods), typically one to five years in length depending on property types at issue. Items include:
Understand the scope of your unclaimed property exposure and internal control risks by conducting a feasibility study. From accounting systems review to the availability of records and documentation, the study can help you implement an effective unclaimed property strategy. You’ll be provided with a range of potential exposure by property type and legal entity. The results can be used to book ASC 450 accounting reserves and can help with remediation measures in California and other states. This may include voluntary disclosures, policy and procedure creation, and a formal compliance process.
Hear Directly From BDO Tax Leaders in our 2023 California Tax Issues Webcast Series
Each webcast in the series includes an update on the California Unclaimed Property Law.