Modernize escheatment to generate more revenue

Escheatment: Learn about how it can help state governments generate revenue.

Tags: Government, Payments, Regulations
Published: April 05, 2018

It’s possible for states to generate significantly more revenue through escheatment. This can happen if corporations can do a better job complying with state statutes requiring them to report abandoned or unclaimed property.

“Efforts to drive compliance through audits are costing states big money and are often inefficient,” says Mark Paolillo, a principal and practice leader in abandoned and unclaimed property at Ryan, LLC, a Dallas-based global tax services firm.

“There are billions of dollars in unclaimed property within corporate America,” Paolillo says. “If reported by corporations as required, many of those dollars could ultimately end up in state government coffers, since the property re-claim rate by individuals in the escheatment process is quite low. If states can overcome this pervasive non-compliance, they can generate revenue without raising taxes.”


The key is to modernize the whole process, and Paolillo offers three suggestions:

1.  Formalize audit programs

Develop standardized and written audit procedures that state-employed auditors and contracted auditors can follow. If these procedures are shared with corporations in advance, they’ll be ready to cooperate. They’ll already have the best information available when the audit begins.

“The biggest complaint you hear from corporate America is that they don’t have audit guidelines,” Paolillo says. “When you have a state or federal [tax] auditor come in, companies usually know and understand the procedures they’ll undergo and there’s a more trusting relationship. In the unclaimed property arena, contracted auditing firms often don’t follow very formal procedures. This can create mistrust.”


States can add efficiency to the process by letting corporations know up front what to expect:

  • The issues being reviewed
  • How far back the review will go
  • The range of potential assessments, including interest and penalties

By adding efficiency, states or their contractors can work through more audits, Paolillo says. “That’s important, because states don’t receive proceeds from an assessment until the end of an audit.”


There are billions of dollars in unclaimed property within corporate America.


2.  Revise statutes and regulations

Revisiting outdated statutes and regulations to incorporate modern business practices can go a long way toward increasing reporting and auditing efficiency.

“There’s a need to update these laws, many of which are from the 1950s,” Paolillo says. “They say things like ‘anything else we haven’t named [in this statute] is also reportable.’ I think that frustrates some companies.”

Paolillo encourages states to cooperate with the Uniform Law Commission (the National Conference of Commissioners on Uniform State Laws), which is working on updating uniform state legislation on unclaimed property.


3.  Move to electronic reporting

Each year, companies can spend hundreds of hours filling out, and mailing or faxing, a variety of forms in each state in which they do business. Electronic filing, which is well established in the income tax arena, would help improve unclaimed property reporting compliance. The resulting databases would make state research and accounting tasks easier.

“Not all states have e-filing,” Paolillo points out. “That means they’re still processing paper. Electronic reporting would allow states to collect and understand the compliance picture on a more sophisticated and targeted level.”


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