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Tax-Exempt Entities Face Unclaimed Property Concerns


Unclaimed property is becoming an area of concern and risk for many businesses, including tax-exempt organizations, such as Internal Revenue Code 501(c)(3) and other similarly situated not-for-profit ("NFP") entities.

As with for-profit businesses, NFP entities are increasingly wrestling with unclaimed property issues related to outstanding checks issued to vendors and credit balances, including the timing for remitting unclaimed property, the amount to escheat, the jurisdiction to which the funds must be remitted and all of the associated record-keeping requirements. In fact, NFP entities have the same unclaimed property tracking and reporting obligations as for-profit companies, plus, due to regulatory oversight, some NFPs face more complicated unclaimed property issues, including accounts payable checks and out-patient and in-patient credit balances. As state unclaimed property laws continue to evolve and enforcement continues to increase, NFP entities must be aware of their potential unclaimed property liabilities and should consider strategies to minimize these risks.

Given the disparate types of property subject to escheatment, the varying dormancy periods for the property classes, and the differing rules across the states regarding unclaimed property reporting, organizations should periodically review their formal unclaimed property policies and procedures or should establish policies and procedures if the business or NFP is not currently filing unclaimed property reports. Having adequate documentation regarding unclaimed property is crucial as states continue to struggle with budget deficits and unclaimed property is quickly becoming a significant revenue source for many states.

NFPs that believe that they are not in compliance with their annual unclaimed property filing obligations, or are unsure of what their potential liabilities may be, should work to manage such risk by reviewing the various types of unclaimed property currently held. Organizations that uncover unclaimed property liabilities can reduce current and future risks by voluntarily coming forward and initiating some type of Voluntary Disclosure Agreement, which typically limits the look-back period (e.g., the number of years of past returns that must be filed) and provides penalty and/or interest relief. Organizations may also be able to implement changes to current accounting procedures to mitigate future risk.

For more information regarding unclaimed property or other state and local tax matters, please contact Corey L. Rosenthal, JD, director, State and Local Tax ("SALT") Practice, at crosenthal@jhcohn.com or 646-625-5729, or Patrick J. Duffany, CPA, JD, partner and director of the Firm's SALT Practice, at pduffany@jhcohn.com or 860-368-3607. For information on J.H. Cohn's Not-for-Profit Industry Practice, please contact Kelly Frank, CPA, partner and director of the Not-for-Profit Industry Practice, at kfrank@jhcohn.com or 973-403-7999, or Thomas Lanning, CPA, partner and member of the Not-for-Profit Industry Practice, at tlanning@jhcohn.com or 646-834-4108.

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Published date: 7/10/2012

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