Understanding Texas Escheatment Laws: Who Do They Affect?

Texas escheatment laws apply to organisations and individuals who are holders of unclaimed property. In Texas, holders of unclaimed property are required to report it to the state to maintain compliance with the state's unclaimed property laws and regulations. This includes a range of tangible and intangible items such as uncashed checks, unused gift certificates, accounts receivable credits, deposits, refunds, rebates, and more. Texas has specific requirements and procedures in place for reporting and claiming unclaimed property, including due diligence mailings for items valued at $250 or more. The state also offers a Voluntary Disclosure Agreement (VDA) to encourage compliance and waive penalties for those who come forward voluntarily.

Reporting deadlines

Texas escheatment laws require holders to report unclaimed property to the state by July 1st of each year. This is to maintain compliance with Texas unclaimed property laws and regulations.

Texas is one of only two states to enforce a summer deadline for escheat reporting. Notably, Texas has a consistent filing deadline for all holders and property types.

For items valued at $250 or more, holders must perform due diligence mailings. These letters must be sent no later than May 1st for each reporting year. Due diligence mailings should be sent out early in each reporting cycle, with reports reviewed and mailings planned accordingly to maximise the effectiveness of campaigns.

Compliance and enforcement

To maintain compliance, holders have an obligation to report unclaimed property to the state by the annual escheat reporting deadline of July 1st. This applies to all holders, including individuals. Texas also requires holders to perform due diligence mailings for items valued at $250 or more by May 1st of each reporting year.

The Texas Comptroller encourages compliance through outreach and audit letters sent to businesses that are suspected of under-reporting escheat liabilities or have not filed reports. These letters recommend that businesses complete a questionnaire and other forms to help identify any unclaimed funds being held.

Texas utilizes unclaimed property audits to measure an organization's level of compliance and enforce its statutes. The Comptroller may waive penalties or interest assessed on delinquent property if the holder has made a good faith effort to comply with existing unclaimed property laws.

To promote compliance, Texas offers a Voluntary Disclosure Agreement (VDA) to holders who wish to come into compliance retrospectively. This allows organizations to report past-due property in exchange for a waiver of the penalties and interest associated with a Texas state unclaimed property audit. To enroll in the VDA program, holders must submit a written request including specific information such as company contact details and an estimated amount of remittance.

Texas has been increasing its compliance efforts and enforcement of unclaimed property laws, with a return of $2 billion in unclaimed funds to Texans since 2015. The state employs third-party contingent-fee auditors and has been enforcing unclaimed property laws more strictly, with audits that can go back 15 years or more.

Voluntary disclosure agreements

Texas escheatment laws apply to individuals and organisations. In Texas, unclaimed property audits are used to assess an organisation's compliance with unclaimed property laws.

To qualify for a VDA, a business must:

• Have any liability for a tax or fee administered by the Comptroller's office, excluding taxes collected under the International Fuel Tax Agreement (IFTA).
• Not have been previously contacted by the Comptroller about a liability or estimated liability.
• Not have received notification of an audit or examination.

The Comptroller's office will review reports from the previous four years, but there is no limit on the look-back period for taxes collected and not remitted. The VDA process can be initiated by contacting the Business Activity Research Team (BART) in writing. Information required includes:

• Entity type (e.g., corporation, partnership)
• A brief description of the company's business and Texas activities
• The date the company began business in its home state and in Texas
• The tax type(s) for which a VDA is requested
• Any taxes the entity is already set up for in Texas, and the taxpayer number
• A statement indicating whether the company has been contacted by the Comptroller about the tax type(s) in question
• A statement indicating whether the company has collected but not remitted any Texas tax
• A request for a payment agreement if needed, and a statement if the business foresees problems with full payment of disclosed taxes
• An estimate of the amount owed
• Any additional supporting information

Once the VDA is signed by both parties, BART will send the executed VDA with the applicable reporting forms. The tax data and payment of the voluntarily disclosed taxes are due within 60 days, as per the agreement.

A Fast-Track VDA is also available for taxpayers who meet all the criteria for a standard VDA and have calculated the tax amount upfront. This process is quicker, as the Comptroller's office will not review for additional taxes owed.

Reporting unclaimed property

In Texas, unclaimed property can be any financial asset or safe deposit box contents that have been abandoned by the property owner for one or more years. This includes abandoned bank accounts, payroll and vendor checks, and unredeemed gift cards.

Businesses and government entities doing business with Texans are considered "Holders" and are statutorily required to file an annual report to the Texas Comptroller's office for unclaimed property. Reports are filed online. If there is no unclaimed property to report for the year, a negative report must still be filed using the online manual reporting function.

The first step in reporting unclaimed property is to determine if the property is abandoned. This involves figuring out if there has been any communication or business dealings with the property owner during the abandonment period. The abandonment period varies according to the property type.

After determining that the property is abandoned, notices must be sent to the property owners. These notices should state that the holder is (a) holding the property and (b) required to deliver the property to the Comptroller's office by July 1 if it is not claimed.

Holders are required to submit the owner's money and/or financial assets, along with the owner information, in a report to the Texas Comptroller's office. After submitting, records of the report must be retained for at least 10 years.

Texas has an escheat reporting deadline of July 1st, and holders must report unclaimed property to maintain compliance with the state's laws and regulations. Holders are also required to perform due diligence mailings for items valued at $250 or more by May 1 of each reporting year.

Compliance filings requirements

Compliance Filing Requirements for Texas Escheatment Laws:

Texas has specific requirements and procedures for compliance filings related to unclaimed property and escheatment. Here are the key compliance filing requirements:

Consistent Filing Deadline: Texas has a uniform filing deadline for all holders and property types. Reports and payments are due by July 1st. This is in contrast to most other states, which have different deadlines for financial institutions and insurance companies.

Due Diligence Mailings: Holders of properties valued at $250 or more are required to perform due diligence mailings as an attempt to contact the rightful owner of the property before it is reported to the state. These letters must be sent by May 1st of each reporting year. Due diligence is not mandatory if the holder does not have a current or email address for the owner.

Aggregate Filing: Texas allows for aggregate filing of property valued at $25 or less. This means that items of intangible property valued at $25 or below can be grouped by property type and reported as a total according to the corresponding property code.

Negative Reporting: Texas requires holders to file a negative report if they have reviewed their accounting for unclaimed property and found none for a given report year. Negative reporting is considered a best practice for holders with a prior filing history in the state.

Self-Audit: If the Texas Comptroller suspects that a holder is potentially holding unclaimed property owed to the state, they will send a self-audit letter. In response, holders are expected to perform a detailed review of their records to determine if they are holding any unreported or underreported unclaimed property. If holders need more time, they may request a limited extension or consider entering the Texas voluntary disclosure program.

Compliance Process: All organizations should establish a robust annual filing process, including due diligence efforts to mitigate penalties, interest, and audit risks. This includes maintaining policies and procedures specifically for unclaimed property compliance to avoid falling out of compliance with state escheatment laws and regulations.

Voluntary Disclosure Agreement (VDA): Texas offers a VDA to encourage holders to come into compliance with unclaimed property laws. Holders who have not previously filed Texas unclaimed property returns can submit a written request for a VDA, which includes a waiver of interest and penalties. The request must include the company contact name, contact phone number, Tax ID Number or Federal Employer Identification Number, and an estimated amount of remittance.

Frequently asked questions