Massachusetts and Connecticut Abandoned-property Laws What Practitioners Need to Know, but Probably Don’t

If you are like most medical/dental practices, every so often in an effort to clean up the books, the individual preparing the bank reconciliation will ‘write off’ or ‘void’ old outstanding checks taking the funds back into income. However, if these checks are refunds to patients or uncashed payroll checks, this simple, seemingly logical step could be placing you in violation of the Massachusetts Abandoned Property Law.

‘Property’ for the purposes of this article refers to all intangible personal property. For a medical/dental office this includes but is not limited to: money, money orders, checks, deposits, credit balances, customer overpayments, security deposits, refunds, credit memos, unpaid wages, or amounts distributed from a trust or custodial fund.

‘Abandoned’ refers to the assumption of abandonment. Typically the whereabouts of the owner is unknown, the last known address was in Massachusetts, and there has been no claim by the owner for a period of time referred to as a ‘dormancy’ period. For most items the dormancy period is three years, though there are some exceptions.

What is the purpose of the abandoned property law?

The abandoned property law was established to protect the rights of property owners and to have a method of reuniting them with their funds. It provides for a central point of contact for owners to claim abandoned funds, and it relieves holders of liability. Abandoned assets are deposited in the Massachusetts General Fund annually.

Owners of property can claim their financial assets at any time, and all funds earn interest until claimed.

Who must file?

All business associations, whether or not for profit, in the Commonwealth of Massachusetts should file an abandoned property report, Form AP-1. Businesses required to file are referred to as ‘holders.’ If the business does not have any abandoned property, it should file a negative report affirming that it has no abandoned property to report. A negative report may be filed on the AP-1 Form or on a letter written on the company’s letterhead, signed by an officer of the corporation and notarized.

Where to get more information

Practices should familiarize themselves with the law. A PDF version of the form and instructions can be found at www.mass.gov/ctre/docs/abp/abanpropbook.pdf, or go to www.mass.gov and type “abandoned property” in the search bar for additional information.

What next?

Identify potential abandoned property to be remitted. In the case of a medical/dental practice, this will most likely be uncashed refund or payroll checks or accounts-receivable credit balances that have been outstanding for three years as of June 30 of the reporting year. Be aware that Massachusetts has a business-to-business exemption which exempts outstanding credit balances to a vendor or commercial customer from a vendor resulting from transactions occurring in the normal and ordinary course of business. The logic behind this is that businesses have frequent encounters and potentially many transactions that may result in overpayments, underpayments, or accounting errors which will ultimately work themselves out. They do not ordinarily involve a ‘lost owner.’

Due diligence

All holders are mandated to attempt to locate the owners of the property. The law requires that a notice must be sent by first-class mail to the last known address of every owner with property valued at $100 or more at least 60 days prior to the filing of reports with the Abandoned Property Division. In Massachusetts the due-diligence period is typically the period from July 1 through Sept. 1. Due-diligence letters should include a description of the property, a statement explaining that state law requires holders of abandoned property to report and remit such property and the date the property will be reported to the Abandoned Property Division, if owner contact is not made.

Any holder who fails to provide due diligence notices will be fined $1.00 for each owner whose property is remitted to the division by the holder or $1,000, whichever is greater.

Though the law specifically mandates due-diligence notices for property valued at $100 or more, intangible property with a value of less than $100 is not exempt from reporting and remittance requirements. Balances less than $100 are still required to be reported and remitted to the state. These may, however, be reported in aggregate (without detail of each individual owner), though aggregate reporting is not recommended. To the extent the practice has pertinent information about the owner of the property valued at less than $100, it should be reported with details along with those balances greater than or equal to $100.

Record retention

In accordance with the law, records must be kept for nine years from the date of last activity, or six years from the date such property is reported. This includes copies of the reports filed with the state (Form AP-1), back-up information used to prepare the Form AP-1, and copies of all due-diligence letters, including any correlating records such as notification by post office of letter being returned as undeliverable. Upon audit, if a holder has filed, but has not complied with the record retention requirements, the examiner may estimate the liability for property that may not have been reported.

Filing deadline

All holders are required to file Form AP-1 and remit abandoned property by Nov. 1 of each year. Reports include all property that is unclaimed for the designated abandonment period (three years in most cases) as of the preceding June 30. An extension of time for up to two months for reporting and turning over property may be granted by the treasurer if the treasurer deems it is warranted. An extension of filing and remittance similarly extends the notice requirement periods. Requests for extension can be made by sending a letter to the Abandoned Property Division via fax prior to the Nov. 1 deadline.

Failure to file and audits

The state treasurer can examine the records of any business to determine compliance with the abandoned-property law at any reasonable time and upon reasonable notice. The costs of the audit may be payable by the business owner.

Records may be audited going back six years from the date an abandoned property report was due to be filed or the date upon which the report was received if an extension had been granted, whichever is later. In the case of holders who have filed reports annually, the audit scope is limited to the property that had become reportable during the six-year period of limitation. If a holder has failed to file reports as required by law, or filed a false, fraudulent or insufficient report, the six-year period of limitation is waived, thus allowing the Commonwealth to go back even further.

A holder can be assessed a penalty of not more than $500, and interest on the property value for failure to report and remit the property.

What if my practice is in Connect-icut?

The Connecticut unclaimed property regulations are similar to Massachusetts though there are some notable differences. Reporting requirements and forms can be found at www.state.ct.us/ott/ holderoutreachoverview.htm.

A few of the pertinent differences from Massachusetts include:

• The dormancy period for wages, payroll and salary is one year vs. three in Massachusetts;
• There is no minimum dollar amount for which due diligence letters are required as compared to the $100 threshold in Massachusetts;
• Due-diligence letters are required at least six months prior to presumption of abandonment for wages, salary, or other compensation and refunds vs. 60 days in Massachusetts;
• For all other property, due-diligence letters are required within one year before presumption of abandonment;
• Aggregate reporting requires pre-approval from the state treasurer, and companies must maintain the detailed information for 20 years; and
• Reports and remittances are due on March 31 for property assumed abandoned prior to Jan. 1 of the filing year.

Summary

The preceding information is not intended to be all-inclusive or to provide all necessary advice regarding filing requirements under the Abandoned Property Law. Refer to the states’ Web sites for further instruction and requirements as they pertain to your company, or consult your business advisor.

Many businesses are unaware of the law, do not feel they are holders of abandoned property, or do not feel they are required to file under the law. Companies should thoroughly review their books and develop procedures for ongoing identification and reporting of unclaimed property. It is likely that, at some point, states will give more attention to this area.v

Lisa A. Patenaude, CPA, is a partner in the Health Care Services Division of Meyers Brothers Kalicka, P.C. in Holyoke, Certified Public Accountants and Business Consultants; (413) 536-8510.