Failure to File Unclaimed Property Reports May Result in Significant Penalties
by Kurt Beck and Michael Merkel
Auto Dealer Alert, 2007 Volume 2

In 2005, the state of Michigan revealed that it would be increasing enforcement for failure to file unclaimed property reports. Although we’re unaware of any auto dealers who have been audited to date, there are indicators that audit activity will increase. Penalties for failure to file are significant.

What Constitutes Unclaimed Property?

Any dealership that’s in possession of unclaimed property is subject to reporting requirements under the Michigan Uniform Unclaimed Property Act. Unclaimed property includes tangible or intangible property that is unclaimed by its rightful owner. It encompasses more than 100 items, including payroll checks, accounts payable checks, accounts receivable credits, and customer deposits and overpayments. Property is considered unclaimed after a dormancy period (anywhere from 1 to 15 years) has elapsed with no activity.

What Are the Penalties?

All items considered unclaimed as of June 30 must be reported and remitted by November 1 each year. Failure to do so may result in one or all of the following:

• Interest at one percentage point above the adjusted prime rate per annum per month on the property or value of the property from the date the property should have been paid or delivered.
• Penalty at 25 percent of the value of the property that should have been paid or delivered.
• Penalty at $100 for each day the report is withheld or other duties are not performed, not to exceed $5,000. “Other duties” include sending written notice to an apparent owner of unclaimed property at least 60 days before the report is due to the state.

How Should You Proceed?

The state has appointed an out-of-state firm to begin conducting these audits. In light of this new activity, dealerships may want to review their records to determine if they have any unclaimed property. To report unclaimed property, go to http://www.michigan.gov/treasury/; the Manual for Reporting Unclaimed Property and forms required for reporting may be found there. For additional information or to review methods for potentially minimizing the amount of property subject to unclaimed reporting, please contact your professional tax advisor.