Basic Rules of Unclaimed Property Reporting
For the oil industry, there are only four basic rules for unclaimed property reporting, regardless of the state to which reporting and payment are required.
The first rule is that unclaimed funds are eligible for escheat (payment to the state as unclaimed property) only, and only if, the holder (company holding the funds) has lost contact with the owner of those funds, and has no contact with the owner during the look-back period set by the state to whom the reporting and payment are owed. Each state defines the look-back period in its statutes.
The second rule is that reporting and payment are owed only to the state of the lost owner’s last-known address, not to the state where the producing well is located, if the two states are different.
The third rule is that all funds eligible for escheat company-wide must be reported and paid, not just production revenues owed to lost owners. These other funds can include unpaid wages, un-cashed company checks attempting to pay invoices, and any other payment by the company to a third party that was not completed as of the beginning of the look-back period. Those funds are considered owned by the third party who failed to collect them, so they are payable to the state of that party’s last known address.
The fourth universal rule is that if the company never had any address for the lost owner (even one stated in a long-expired lease), then the holder must report and pay that unclaimed property to the state where the holder is incorporated.
Note that the first rule says nothing about the suspense code(s) for the owner. The rule looks only at contact, period. This is why all owners who have been 100% in suspense the entire look0back period for any reason—not just by reason of bad address—should be sent an escheat letter requesting reply. They might be in suspense for a title requirement, but is the owner working on resolving it? The company needs to receive a documented phone call, or email, or USPS mail response acknowledging they can still be contacted at the address on file with the company. However, if the escheat letter gets returned as undeliverable, or there’s no response, the reporting state considers that “lost contact” and the owner’s funds are now escheatable. Failure to escheat timely can carry hefty interest and penalties, and yes, companies are audited more so today than in the past.
Many companies today use an unclaimed property reporting service. That service must rely on the data in the computer system to screen for escheat eligibility. In the end, it is lost contact that determines eligibility and deadlines for escheat. And yes, if the owner has cashed any remittance check from the company during the look-back period, regardless of the properties involved, none of their suspended funds are escheatable. The cashed check is proof of contact.
Next week’s blog will be “Know the What and Why, Before Tackling the How.”