As a business owner, you’ve probably received a notice from the Michigan Department of Treasury advising you to report and turn over to the state any unclaimed property you have.  Many businesses have unclaimed property resulting from normal operations.  Some examples include uncashed payroll checks, uncashed vendor checks, credit balances on accounts receivable, etc.  Any of these assets must be reported and turned over to the state if they remain unclaimed for a certain period of time.  For example, uncashed payroll checks must be reported and turned over to the state after one year and uncashed vendor checks must be reported and turned over to the state after three years.

The due date for filing the unclaimed property annual report is July 1, 2012 for property reaching its dormancy period (e.g., one year for uncashed payroll checks) as of March 31, 2012.

Example:  You issue two paychecks.  The first paycheck is issued March 27, 2011 and the second is issued April 3, 2011.  The March 27 paycheck is dormant for one year on March 31, 2012, and must be reported and turned over to the state by July 1, 2012.  The second paycheck issued on April 3, 2011 has not been dormant for one year on March 31, 2012 and must not yet be reported.  If this paycheck remains unclaimed on March 31, 2013, it must be reported and turned over by July 1, 2013.

Penalties for Not Filing or Turning over Unclaimed Property

Penalty and interest may be assessed as follows:

• interest at 1% over prime per month on the property or the value of the property from the date the property should have been paid and/or
• penalty at 25% of the value of the property that should have been paid

If the state audits a business for compliance with unclaimed property reporting, the state can go back 10 years.  A concern is that the state is outsourcing its audit function to third party auditors who are paid on a contingency basis based on the amount of unclaimed property they find.  Additionally, third party auditors may only audit a recent period, then extrapolate the value of any unreported unclaimed property over the ten years.  This could result in substantial penalties and interest.

If You Don’t Have Unclaimed Property

If you are certain you don’t have unclaimed property to report and pay over, you can file Form 4305, Attestation of Compliance with Unclaimed Property Reporting, by January 31, 2012.

Voluntary Compliance Agreement

The state is providing businesses that have not previously reported or have underreported unclaimed property in the current and past four years with an opportunity to comply with the reporting and payment requirements by entering into a Voluntary Disclosure Program by filing Form 4869.  The program will waive all penalty and interest on property voluntarily submitted to the state.  The deadline to enter into this agreement is January 31, 2012.

Questions…

There is some uncertainty about whether the Department of Treasury has the authority to enter into these Voluntary Compliance Agreements or to require business to report when they DO NOT have unclaimed property.  The State Bar of Michigan issued an email to its members this past week questioning the Department’s ability to impose these requirements.   The State Bar issued a letter to the Department of Treasury regarding the uncertainty of these requirements.  The State Bar has not yet heard back from the Department.

So…if you have any questions regarding this issue please feel free to contact us.