The tax attorneys at Nardone Limited in Columbus, Ohio routinely advise clients regarding their holding responsibilities as mandated by the Ohio Division of Unclaimed Funds (“Division of Unclaimed Funds”). Subject to certain exceptions, all businesses located in Ohio, who: (i) maintain account balances; (ii) write checks; or (iii) hold funds in escrow are required to file an Annual Report with the Division of Unclaimed Funds. With the exception of life insurance companies, the annual reporting deadline for businesses is November 1st. Further, even if a business is not holding any unclaimed funds for a specific year, the business is still required to file a negative report with the Division of Unclaimed Funds. Failure to report the required funds may result in civil and criminal penalties. Further, if a business is the keeper of any unclaimed funds, then the business may be subject to an audit by the Division of Unclaimed Funds.
Criteria for the Division’s Selection of Businesses for Audit
Unclaimed funds include monies or the right to monies that may have been dormant in a checking or savings account, uncashed checks, dormant payroll checks, credit balances, and unclaimed wages. When a business maintains unclaimed fund, the Division of Unclaimed Funds may select the business for audit. Businesses are selected for audit first on a random basis and then based upon the application of certain non-exhaustive factors, including: (i) the business’s assets or sales volume; (ii) the business’s past reporting history relative to other entities of the same size or industry; (iii) evidence or complaints of failure by the business to conduct due diligence as required by the Division of Unclaimed Funds and Ohio law; (iv) filing negative annual reports for consecutive years; and (v) simply never being subject to an audit.
A Business’s Rights During an Unclaimed Funds Audit
Like any administrative action, an audit by the Division of Unclaimed Funds is governed by notice and other procedural requirements under Ohio law. The Division of Unclaimed Funds must send the business written notice of the audit. The notice will contain information including: (i) the auditor, (ii) the scope of the audit, (iii) the identity of all participating states, and (iv) notice of the right to appeal. After the Division of Unclaimed Funds has sent the notice, the Division of Unclaimed Funds will send an initial request relating to the records required for review. Upon receipt of the initial request, a business has 60 days to make the requested records available, unless the Division of Unclaimed Funds and the business agree to an extension.
The Audit Process
During the audit, the auditor will review the documents provided by the business. Ultimately, the Division of Unclaimed Funds will issue preliminary findings based upon the auditor’s review of the documentation. The business is then required to respond to the preliminary findings by either agreeing to the preliminary findings or providing the necessary documentation to dispute the preliminary findings. The Division of Unclaimed Funds will then review the additional documentation and will issue its final findings, including any assessed penalties. It is important that businesses know that their policies regarding the retention of records and unclaimed funds may not meet the requirements under Ohio law, and any inadequacies may result in the Division of Unclaimed Funds assessing civil and criminal penalties, plus interest.
Potential Penalties
If a business fails to properly report unclaimed funds, then the business may be subject to: (i) two civil penalties of up to $100.00 per day and (ii) criminal penalties of up to $500.00 per day, plus interest at a rate of 1% per month on the balance of unclaimed funds due. See R.C. 169.12 and 169.99. Thus, it is very important that businesses comply with the Division of Unclaimed Funds’ reporting requirements.
Conclusion
The tax attorneys at Nardone Limited in Columbus, Ohio routinely represent businesses in matters regarding the Division of Unclaimed Funds requirements and audits. If your business has been contacted by the Division of Unclaimed Funds for an audit, we encourage you to contact one of our tax attorneys.
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