California will require taxpayers filing a corporation franchise/income tax return, partnership return, or LLC return to disclose whether they have historically filed unclaimed property reports with the State Controller’s Office (SCO). The law passed last summer and is effective January 1, 2022 for 2021 tax returns. The unclaimed property reporting is significant as it will allow the Franchise Tax Board (FTB) to share information with the SCO that will likely lead to unclaimed property audits of taxpayers that have not filed unclaimed property returns.
California’s unclaimed property system is one of the most unforgiving in the United States with no current voluntary compliance program, a 10-year lookback, and an annual interest rate of 12% on unreported property. There is speculation around the new reporting law that California may consider offering a voluntary compliance program to incentivize property holders into reporting unclaimed property. Reports suggest a mere 2% of businesses comply with the state’s reporting laws.
If your business has California unclaimed property or you are unsure, now is the time to review your records. Assessing the potential liability for the unclaimed property will allow you to evaluate risk and prepare for the reputed voluntary compliance program if it comes. Please contact HBK’s SALT Advisory group at HBKSalt@hbkcpa.com with questions.
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