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Illinois treasurer offers soft landing for unclaimed property

July 13, 2020
In the state’s ongoing efforts to raise revenue without increasing taxes, don’t forget about unclaimed property that must be reported to Illinois — and the ensuing penalties when that doesn’t happen.
An area dealer currently under audit over unclaimed property at the store said auditors intend to review business records dating to 2006 — a time-consuming venture since the dealership converted to electronic recordkeeping only a few years ago.
The combination of the length of the audit period, a lack of available records, and a lack of what an auditor may deem "sufficient support" often leads to an unexpected estimated assessment well in excess of what a company believes it owes and has reserved for accounting purposes.
Unclaimed property — for dealers, commonly uncollected final payroll checks and forgotten deposits on unconsummated deals — must be reported annually to the Illinois treasurer’s office. Mostly after three years, the property is considered dormant and must be turned over to the office.
 Businesses are expected to contact unclaimed property owners, although they are not required to notify the owner of an item valued at less than $75 prior to transferring it to the treasurer’s office.
By Illinois law, during an unclaimed property audit, auditors are entitled to a "lookback" period of 10 years plus the (mostly) three years it takes for something to achieve dormancy. In essence, 13 years. Based on the point of the year the audit takes place, the lookback period might stretch to a 14th year.
The auditors, naturally, are looking for records of property that remained unclaimed but that was never forwarded to the state treasury department. If such instances are uncovered, the sums of the properties plus fees, penalties and interest would be owed to the state.
All businesses accumulate unclaimed property, but Illinois Treasurer Michael Frerich’s office offers a way to soften the blow if overlooked monies are uncovered. It has been in effect since 2008: a Voluntary Disclosure Agreement.
Under the agreement, a business would grant auditors the opportunity to examine 14 years’ worth of books and records to determine whether any unclaimed property existed and whether it ultimately was reported to the state. In return, all fees, penalties and interest otherwise attributable to the obligation would be waived. A dealer under examination cannot enter into the agreement.
Ashton Kulavic, the Illinois Treasury Department’s examinations audit manager, said the Voluntary Disclosure Agreement enables businesses to disclose unclaimed property that was not reported to the state and to do it without penalty — so long as they act in good faith.
"There is no downside to coming forward," Kulavic said.
The Illinois Unclaimed Property Act was last amended in 2018. The changes reduced the dormancy period but increased the lookback period, essentially leaving unchanged the full audit term. The 13-year document retention requirement roughly acts as a statute of limitations.
Dormancy periods vary by property type, from one year for payroll matters to seven years for money orders.
Prior to 2018, Illinois had the broadest form of B2B exemption concerning unclaimed property. It exempted from the reporting requirement all unclaimed payments to a business made in the ordinary course of business, as well as credits owed to customers that are business associations. The 2018 change repealed the B2B exemption.
While the Voluntary Disclosure Agreement is ongoing, the Illinois treasurer’s office has occasionally run other amnesty programs. During one recent window of opportunity, Illinois businesses remitted $37.7 million in unclaimed property without penalty — including $27 million from a single company.
The Illinois treasurer’s office is holding more than $3 billion in unclaimed funds for Illinoisans. The office holds the lost funds until they are claimed either by the original owners, their heirs, or legal representatives. The office legally is required to get the property to the rightful owners no matter how long it takes for them to come forward.
All states have laws regulating the reporting and remittance of unclaimed property, also referred to as abandoned property. The laws try to ensure the property is returned to its rightful owner — and to permit the public to benefit from the use of those funds until the true owner can be found.
Since 2015, the Illinois treasurer’s office has returned more than $703 million in assets.