Business Obligations for Unclaimed Property & Stale-Dated Checks

Thoughtware Article Published: Jul 24, 2020
Someone handing a check to someone else

If you’re responsible for managing the bookkeeping for a company, you’re probably familiar with the frustration that comes with reconciling the bank statement every month only to find long-outstanding checks. Most would simply consider voiding the check and making the funds available for use. This approach could result in stiff penalties if discovered. The state has determined that those funds no longer belong to the business owner once the check has been issued and will therefore create a holding location where the recipient can claim them in the event a business is unable to fulfill the financial obligation.

What’s a Stale-Dated Check?

Business checks often have a notation stating how long they’re valid, usually between 90 days and one year. A stale-dated check is one that has exceeded that period. If no such statement is present on the check, most banks will exercise their right to refuse a check more than six months old. A common way to identify stale-dated checks is by reviewing regular bank reconciliations. This process highlights checks that haven’t been presented to the bank for payment or uncleared checks.

What’s Unclaimed Property?

In general, unclaimed property constitutes intangible or tangible personal property issued, held, or owed in the ordinary course of business that has remained unclaimed for a specific period of time by the rightful owner. After a specified period, such property must be remitted, i.e., escheated, to the state.

Over the past three decades, potential items constituting unclaimed property have been expanded, as well as the definition of who constitutes a “holder,” the ultimate obligor required to report and remit unclaimed property. Under the 1995 Uniform Unclaimed Property Act, the definition of “property” in the context of “unclaimed property” was broadened to include both tangible and, most important, the types of intangible property that were subject to escheatment. This latest act empowers the adopting states to review virtually any general ledger category within a corporation’s chart of accounts for possible property subject to escheat.

Three parties are involved in administration of the unclaimed property provisions. These include the “holder” (the persons obligated to hold for the account of the owner, or deliver or pay to the owner, property subject to escheat); the “owner” (the person who has legal or equitable title to the property and to whom the property is owed); and the state, which serves as the ultimate fiduciary of any unclaimed property if the true owner can’t be located.

Unclaimed property provisions implement two rules for determining the fiduciary state. Under the primary rule, the property is remitted to the state of the owner’s last known address as shown on the holder’s books and records. If no address can be determined from the holder’s books and records or the last known address is in a jurisdiction that doesn’t provide for escheat of the property, the property is remitted to the state in which the holder is incorporated.

Failure to remit may result in penalties for noncompliance. Although penalties will vary by state, they can add up quickly. A typical penalty assessed to the business owner would be a percentage of the property’s value and interest based on the delinquency of filing with the state.

What’s the Business Owner’s Responsibility?

Each state has different requirements that can be found by researching the state taxing authority or treasurer’s site and locating guidance on unclaimed property. Each state will have different requirements on the following (see table below for current examples of state requirements):

  • Dormancy periods for varying types of property
  • Notification to the recipient and due diligence requirements
  • Maximum threshold for aggregation
  • Frequency of filing
  • Reporting deadlines
  • Specifications on reporting within the holder’s state if different than the recipient’s state

State Chart: Texas & Colorado

Regardless of specific requirements, the general process will follow this framework:

  1. Review outstanding payables that are approaching six months from origination
  2. Determine which type of property is being held, i.e., payroll check, vendor check, etc.
    1. Understand the length of time this property should remain on your books before being reported
  3. Contact the recipient
    1. If ongoing business is conducted with the recipient, inquire if they received the check
      1. If the check was lost or destroyed, call your bank and place a stop payment on the check and reissue
      2. If they have the check and are delaying processing, inform them that further delay will result in the funds being remitted to the state’s unclaimed property department
    2. If no further business is conducted with the recipient, draft a formal letter to the recipient to inform them of the steps you’ll be taking to resolve the uncleared check
  4. Report unclaimed property to the state by the specified deadline, and remit the funds

At BKD, we understand this can be a confusing topic, and we want to help your company stay in compliance with state regulations. If you need assistance navigating this topic, reach out to your BKD Trusted Advisor™, fill out the Contact Us form below, or check out our Outsourced Accounting Services page. We also offer a suite of services related to state and local tax challenges.

1. As reported on Comptroller.Texas.Gov site:
2. As reported on Colorado State Treasurer.Gov site:

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