Understanding the recent changes to Michigan’s unclaimed property laws
Beginning in 2018, all entities registered to do business in the State of Michigan with nothing to report will be required to submit negative reports. In an effort to help our clients understand the recent changes to our state’s unclaimed property laws and to remind them of the reporting obligations for unclaimed property in general, we are providing the following information.
Generally, abandoned and unclaimed property does not belong to the remitter of the property. Rather, the law requires the state to take ownership of the property after a certain dormancy period. The state then holds the asset until the rightful owner claims it. For example, a common item of unclaimed property is uncashed payroll checks. If a payroll check is uncashed after 1 year (and exceeds $50), the employer must file a form reporting that information and include a check to the state for the amount of the uncashed payroll check. Note that most other property (such as payments to vendors) has a dormancy period of three years.
Previously, the state only required a report if there was unclaimed assets to report and it required a remittance to the state. However, as of 2018, Michigan requires a return to be filed even if there are no unclaimed assets to report. The report is due July 1st of each year for property reaching its dormancy period as for March 31st of that year. Since July 1 falls on a weekend this year, the 2017 report is due July 3, 2017. The mandatory annual reporting requirement for those with no unclaimed assets to report will begin effective July 2, 2018.
How you can take action
Please review your records (i.e. old outstanding checks) to determine if you have a reporting requirement for 2017. Note that all businesses registered in Michigan will have a reporting requirement for 2018, regardless of whether they have unclaimed property. If it’s determined that you do have a filing requirement for 2017, note that the due date is fast approaching (July 3rd).
If you determine that you had a filing requirement in the past but did not file a return and remit the payment or property, you can file under the state’s Voluntary Disclosure Agreement to become compliant, and the state will not assess penalties or interest. The requirements are to file the Agreement form, and then within six months submit reports and remit the appropriate payments for the current year and the prior four years.
In recent years, the state has increased the number of audits in this area and the trend is expected to continue. Once an audit notice is issued, the Voluntary Disclosure Agreement option is not available, and penalties (25% of the property value not reported) and interest will be assessed.
We are happy to assist you with the analysis and the filing of the report if one is needed. Please contact your ShindelRock tax professional if you’d like assistance or if you have any questions regarding the unclaimed property rules.