Texas Increasing Unclaimed Property Compliance Efforts Through Outreach

Texas Unclaimed Property, a Division of the Texas Comptroller of Public Accounts (Texas Comptroller), is increasing compliance efforts through outreach. Many organizations conducting business in Texas are receiving audit or compliance outreach letters from the Texas Comptroller’s Unclaimed Property Division, encouraging companies to review their records for any unclaimed funds that may be subject to reporting. The outreach is being sent to businesses that conduct business in the state but have not filed reports or are suspected of under-reporting escheat liabilities with the Comptroller. The letter recommends that businesses complete the questionnaire and other forms to help the Unclaimed Property Division identify whether the business is holding unclaimed funds.

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.

Texas Unclaimed Property Specifics

According to the Texas Comptroller’s 2021 Annual Report¹ , the unclaimed property fund:

• Received $793 million in gross revenues.
• Made $285 million in claimant payments.
• Transferred $506 million to the general fund.
  • The claimant liability in the general fund of $305 million represents the probable amount that will be reclaimed and paid to claimants in the following year.
• A balance of $715 million in marketable securities and mutual funds were held in trust. 

The return of $2 billion in unclaimed funds to Texans since 2015 is reflective of the Comptroller’s increased compliance and enforcement efforts. Below is a summary of important aspects of Texas’ Unclaimed Property Law.²

Interest and Penalties

Additional penalties may apply for failing to pay or deliver property within the time prescribed. 

Voluntary Disclosure

To promote holder compliance, the Texas Comptroller offers a Voluntary Disclosure Agreement (VDA) to holders who wish to come into compliance with Texas’ unclaimed property law, with waiver of interest and penalties.⁷

To enroll in the program, holders must submit a written request for a VDA. The request must include the following information⁸: 

• Company Name.
• Company Contact Name.
• Contact Phone Number.
• Tax ID Number / Federal Employer Identification Number (FEIN).
• Address.
• Email Address.
• Estimated Amount of Remittance.

Holders are ineligible for the VDA program if they have filed Texas unclaimed property returns in the past. This ineligibility may not apply to prospective acquisitions. Please note that Texas requires the VDA be completed within 60 days of execution of the agreement.

Record Retention, Statute of Limitations and Dormancy Provisions

Texas currently requires holders to retain records for 10 report years plus the corresponding dormancy period by property type⁹. For most property types, there is a three-year dormancy. Notably, Texas does have a statute of limitations that requires the comptroller or attorney general to begin an unclaimed property examination prior to seven years after a report is filed. This limitation does not apply in any of the following cases:

• A false or fraudulent property report with the intent to avoid delivery of property was filed.
• No report for the period was filed.
• A court grants a petition to compel the person to submit to an examination under this chapter, deliver property, or file a property report.

For purposes of the statute of limitations, a holder is presumed to have acted with intent to avoid delivery of property if, after correction of a report, the amount of property to be delivered exceeds the amount initially reported by at least 25%.¹⁰

General dormancy periods for the most common property types are summarized below¹¹:

Business-to-Business Transactions

Texas does not have an express exemption for business-to-business transactions in its unclaimed property law. Based on language in prior reporting manuals, Texas was historically considered to have a deferral by policy; however, language that “balances owed to current customers/vendors should not be reported” is no longer included in the  2022 Unclaimed Property Reporting Instructions. Accordingly, holders should operate under the understanding that Texas will not recognize any deferral or exemption and consult advisors to determine if any such deferral or exemption can be argued/applied. 

Texas Compliance Filings Requirements

While most states require financial institutions and insurance companies to use different filing deadlines, Texas has a consistent filing deadline for all holders and property types and requires that a report is filed and the payment is made by July 1.¹²

Due Diligence

Texas requires all holders of properties with a value over $250 to send due diligence by May 1 as an attempt to contact the rightful owner of the property prior to the property being reported to the state. Notably, due diligence is not required if the holder does not have a current address or an email address.¹³

Aggregate Filings

Some states allow intangible property items with a value that does not exceed a certain dollar amount to be sent to the state as a lump sum. These items are grouped by property type and reported as a total according to the corresponding property code. Texas allows aggregate filing for property valued at $25 or less.¹⁴ For any potential restrictions relating to different property types, please see the 2022 Unclaimed Property Reporting Instructions.

Contingency Fee Auditors

The Texas Comptroller uses third-party contingent-fee auditors. As of the end of 2021, the state is under contract with seven such third-party auditing firms. ¹⁵

Negative Reporting

Texas requires 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.¹⁶ Further, negative reporting is generally considered a best practice in cases where holders have a prior filing history with the state.

Please visit the Texas Comptroller of Public Accounts' Website for further information relating to unclaimed property in Texas.

BDO Insight

• Feasibility review – Consider conducting a truncated review of unclaimed property obligations that follows traditional testing methodologies. These reviews arm businesses with a low-to-high range of potential escheat exposures by property type and legal entity. Often, the results of these reviews are used to book ASC 450 accounting reserves and lead to more proactive remediation measures (such as voluntary disclosures, policy and procedures, compliance, etc.). 
• Self-audit letter – Self-audit letters indicate that the Texas Comptroller suspects that the recipient is potentially holding unclaimed property owed to the state. To properly respond to the letter, holders are expected to perform a detailed review of their records to determine whether they are holding any unreported or underreported unclaimed property. If holders are unable to perform this review within the allotted time, holders may request a limited extension or consider entering the Texas voluntary disclosure program to secure additional time to complete their analysis. Recipients are allowed a limited amount of time for the holder to reply - failure to respond to a self-audit letter from the Texas Comptroller will likely result in referral for audit.
• Policies and procedures – The absence of unclaimed property policies and procedures is the easiest way for a company to fall out of compliance with state escheatment laws and regulations. With the successful implementation of full global mapping procedures or streamlined unclaimed property policies and procedures, organizations can drive strong escheat compliance reporting.  
• Compliance - All organizations should establish a robust annual filing process, including due diligence efforts to mitigate penalties, interest and audit risks.
• Other states - If an organization hasn’t been meeting its multistate filing obligations, it should consider voluntary disclosure or amnesty filings with other jurisdictions to mitigate the risk of an audit.

[1] Texas Annual Financial Report for the Year Ended August 31, 2021, at page 56.

[2] See Texas Comptroller Press Release: https://comptroller.texas.gov/about/media-center/news/20220308-comptroller-glenn-hegar-returns-2-billion-to-texas-unclaimed-property-owners-1646677028119

[3] Tex. Prop. Code § 74.707

[4] Tex. Prop. Code § 74.705

[5] Tex. Prop. Code § 74.706

[6] Tex. Prop. Code § 74.709

[7] See Tex. Prop. Code § 74.707, which authorizes the Comptroller to waive the penalty or interest imposed on delinquent property if the holder has made a good faith effort to comply with Texas unclaimed property statutes.

[8] https://www.claimittexas.gov/app/disclosure-program

[9] Tex. Prop. Code § 74.103(b)

[10] Tex. Prop. Code § 74.7021

[11] Texas Comptroller of Public Accounts – Unclaimed Property Reporting Instructions at page 3, 33-34.

[12] https://claimittexas.org/app/dormancy

[13] Tex. Prop. Code § 74.1011; See also Texas Comptroller of Public Accounts – Unclaimed Property Reporting Instructions at page 7-8.

[14] Tex. Prop. Code § 74.101(d); See also Texas Comptroller of Public Accounts – Unclaimed Property Reporting Instructions at page 8.

[15] See Report on the Activities of the Texas Comptroller of Public Accounts, Internal Audit Division, Fiscal 2021

[16] Tex. Prop. Code § 74.101; See also Texas Comptroller of Public Accounts – Unclaimed Property Reporting Instructions at page 11.