New York Increasing Unclaimed Property Compliance Efforts
New York Increasing Unclaimed Property Compliance Efforts
The Office of Unclaimed Funds (OUF) within the Office of the New York State Comptroller is increasing compliance efforts through outreach. Many organizations conducting business in New York are receiving outreach letters like this one from the OUF, encouraging companies to review their records for any unclaimed funds that may be subject to reporting. The outreach is being sent to companies that conduct business in the state but have not filed reports or are suspected of under reporting escheat liabilities with the OUF. The letter recommends that businesses complete the OUF’s Self-Audit Checklist to help identify whether their business is holding unclaimed funds.
Businesses are encouraged to complete the survey even if they have nothing to report. If a business’s survey results indicate that they may be holding unclaimed funds, the survey serves as an application to New York’s Self-Directed Compliance Program (SDCP), which may entitle a business to comply with a waiver of interest and penalties under New York’s Abandoned Property Law (APL)[i]. Failure to respond to the outreach may result in your company being selected for audit by the OUF.
What is unclaimed property?
Unclaimed, or abandoned, property consists of tangible and intangible items that a business owes to its employees, customers, vendors, creditors or shareholders—everything from uncashed checks, voided checks and unused/unredeemed gift certificates to accounts receivable credits, deposits and refunds and rebates.
All 50 states, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands have laws that require companies to report and remit various property types that have been unclaimed or dormant for a period of time. Frequent legislative changes and the administrative burden make it difficult for many companies to successfully implement a compliance process and maintain ongoing compliance. States are enforcing unclaimed property laws more strictly, with audits that can go back 15 years or more now prevalent for all industries and businesses of all sizes.
New York unclaimed property specifics
According to the OUF’s 2020-21 Annual Report of the Office of Unclaimed Funds, the OUF collected $988 million in unclaimed funds in the last fiscal year from the following sources:
Banks – 37%.
Corporations – 19%.
Insurance Companies – 22%.
Court Funds – 5%.
Broker/Dealers – 2%.
Utilities – 1%.
Other – 14%.
These collections were as a result of 193 businesses that participated in the OUF’s Voluntary Compliance Program (VCP), as well as the identification of nearly $216 million in unclaimed funds as a result of 143 audits. Each year, unclaimed funds receipts are used, in the first instance, to pay claims and offset OUF’s operational costs. The remaining receipts are transferred to the General Fund to support state programs and operations. In state fiscal year 2020-21, $572 million was transferred to the General Fund. The Comptroller acts as custodian for unclaimed funds even after they are turned over to the General Fund. This practice does not prevent rightful owners from claiming their funds at any time. The collection of nearly $1 billion dollars in unclaimed funds is reflective of the OUF’s increased compliance and enforcement efforts. Below is a summary of important aspects of New York’s Unclaimed Property Law.
Interest and penalties
Additional penalties may apply for willfully filing false reports or making false verifications under the provisions of the penal law.
Contingency fee auditors
The OUF conducts its own audits and also utilizes third-party contingent-fee auditors for audits. According to the Office of the State Comptroller’s website[iii], the OSC has paid third party contract auditors fees in excess of $25 million dollars over a multi-year period. This is indicative of the audit activity in the state. See Open Book New York - Office of the State Comptroller for more details on published spending.
The OUF has maintained a voluntary compliance program since 1985. Voluntary compliance applies to first-time reporting organizations and, in some instances, to those who have filed in the past but recognize that they have failed to report a particular type of property and have come forward to voluntarily correct the error. Generally speaking, a holder is ineligible for voluntary compliance once OUF contacts the holder regarding an audit. Holders can voluntarily comply under either (1) New York’s Self-Directed Compliance Program (SDCP) or (2) Voluntary Compliance Agreement (VCA). According to the state’s voluntary guidance program website, OUF allows holders six months to review their records after acceptance into either voluntary compliance-program option, with opportunity for a one-time extension of up to 60 days. See Voluntary Compliance Program | Office of the New York State Comptroller for additional information on eligibility and filing requirements.
Lookback period & dormancy provisions
New York’s current look-back period is 10 years plus three-year dormancy for most property types.[iv] The 10-year plus dormancy lookback period applies to all Voluntary Compliance Agreements (VCA) under both options stated above and entered into after January 1, 2017, and audits started after January 1, 2019.[v] If your company was part of a VCA or audit prior to the above dates, your lookback period may be longer. Prior to the changes in January of 2017 and 2019, New York’s lookback period for a VCA was 20 years plus dormancy and back to 1992 for an audit.
General dormancy periods for the most common property types are summarized below.
It should be noted that New York changed its dormancy periods in 2010 such that accounts payable and receivable credits, including merchandise credits issued after 2011 have a dormancy period of three years. Under the old law, the dormancy period for these property types was typically five years.
New York’s APL does not exempt business-to-business transactions. However, New York does offer what is commonly referred to as the “ongoing business customer relationship” exception for certain transactions. To qualify for such escheatment reporting exception, the holder must be able to demonstrate that the customer has either: (i) used the credit balance, (ii) disclaimed entitlement to the credit balance or, (iii) been made aware of the credit balance. A holder cannot write off open customer credit balances in the absence of a specific written disclaimer from the customer or written documentation evidencing that the credit was issued in error or improperly applied.[vi]
New York compliance filings requirements
New York has different filing deadlines depending on business type (e.g., banks, utilities, life insurance companies). Unless your business falls into a specific category, generally the final report and payment will be due on March 10 for property reportable as of Dec. 31 of the previous year. Please see the OUF’s Calendar of Events for specific details.
New York requires all holders to send due diligence mailings and attempt to contact the rightful owner of the property prior to the property being reported to the state. Due diligence must be performed at least 90 days prior to the date the report is due. For property valued at over $1,000, holders must send a second, certified mailing at least 60 days before the report is due. Property valued at $20 or less that will be reported in the aggregate does not require a mailing. Notably, due diligence is not required if the holder does not have an address or the address is not the current address.[vii]
New York allows aggregate filing for property valued at $20 or less.[viii]
New York does not require holders to file a negative report confirming that they have reviewed their accounting for unclaimed property but did not identify any for a given report year. Nevertheless, negative reporting is generally considered a best practice in cases where holders have a prior filing history with the state.
Please visit the OUF's website for further information relating to unclaimed property in New York.
[i] Aband. Prop. Law § 101 et seq.
[ii] Aband. Prop. Law § 1412.
[iv] New York State Office of the State Comptroller – Handbook for Reporters of Unclaimed Funds at page 13-14.
[vi] Id. @ pg. 9.
[vii] See Aband. Prop. Law § 1422 and New York State Office of the State Comptroller – Handbook for Reporters of Unclaimed Funds at page 10 and 30 (for aggregate reporting due diligence mailing exclusion).
[viii] New York State Office of the State Comptroller – Handbook for Reporters of Unclaimed Funds at page 22-23.