This post updated on June 28, 2018 to include some changes to the IL law
Virtually all states have adopted abandoned or unclaimed property rules, and for some states, this can be a significant source of revenue. Since the rules differ by state, it is up to business owners and executives to determine what their reporting obligations are. This article is geared towards Illinois business owners.
Effective January 1, 2018, the Illinois laws regarding unclaimed property were rewritten and are now covered by the Revised Uniform Unclaimed Property Act (“RUUPA”). As you read the information shown below, keep in mind that there are three parties involved with unclaimed property; the “holder” of the property; the “owner” of the property; and the State of Illinois, which serves as the fiduciary of the unclaimed property if the true owner cannot be located. Typically, the accounts or other financial instruments have gone dormant for some period hence are deemed to be “unclaimed” or “abandoned.”
Abandoned or Unclaimed Property
Property becomes unclaimed or abandoned when no action is taken by the owner to claim the property in a timely manner. Unclaimed property includes:
- money, outstanding checks, drafts, deposits, interest, or dividends;
- credit balances, customer overpayments, gift certificates, security deposits, refunds;
- credit memorandums, unused tickets, or unidentified remittances;
- inventory over-shipments;
- unpaid claims, unpaid accounts payable, or unpaid commissions;
- stock or other evidence of ownership of an interest in a business association or financial organization;
- a bond, debenture, note, or other evidence of indebtedness;
- unclaimed wages, payroll, or salary payments; and,
- pension or IRA property held in a fiduciary capacity for the benefit of another person.
Reporting Requirements for Abandoned Property and Change in the Business-to-Business Exemption
For most types of property, businesses in possession of unclaimed property will need to report that property after 3 years instead of the previous 5-year period. For unclaimed payroll, the dormancy period is one year. The holder is obligated to communicate with the owner prior to filing the unclaimed property report. A timely communication must be made at the owner’s last known address to notify the owner of the procedures to prevent the property from being turned over to the State of Illinois.
Another change in the RUUPA was to repeal the business-to-business exemption (“B2B Exemption”). Previously, the B2B exemption if property due or owed by a business to or for the benefit of another business resulting from a transaction occurring in the normal and ordinary course of business was exempt from the unclaimed property rules. Not so under the RUUPA. Now Illinois conforms with most of states and does not exempt B2B transactions from unclaimed property.
The reporting requirements apply to all types of businesses and there are no exceptions for small business associations from reporting. The annual report and remittance must be filed by business associations before May 1 each year as of the preceding December 31. For financial and insurance businesses, the annual report and remittance must be filed before November 1 each year as of the preceding June 30. Extensions of time to file can be obtained in writing from the Illinois State Treasurer. Reporting is required even if no unclaimed property is zero.
Penalties if You Fail to Report Abandoned Property
As with other compliance measures, businesses risk significant penalties for failure to report or perform the required duties. The penalty is $200 per day, up to a cumulative maximum amount of $5,000. In addition, interest at 1% per month is applicable. Thus, compliance is a must.
Other significant changes to the RUUPA include a 10-year record retention requirement, the requirement to file the unclaimed property report electronically, and the requirement to send due diligence letters to owners for property valued at $50 or more.
Examinations of holders of unclaimed property are conducted in compliance with the RUUPA and may involve outside auditors paid on a contingency-fee basis.
Voluntary Disclosure Agreement
Finally, if your business is not in compliance, consider using the Voluntary Disclosure Agreement (“VDA”) program to get in compliance. The VDA is designed to bring holders into compliance with the RUUPA. In exchange for voluntary compliance through an executed VDA the Treasurer’s Office will usually agree to forgo the right to assess penalties and interest outlined in the Act.
How DHJJ Can Help
If you have additional questions regarding unclaimed or abandoned property, please contact by phone at 630-420-1360 or below.