Unclaimed Property Alert for NJ Car Dealers
August 06, 2014
In June, the New Jersey Department of Treasury Unclaimed Property Administration introduced an initiative to bring auto dealerships into compliance with their unclaimed property reporting obligations. The state is offering a “Self Audit and Compliance” opportunity that requests all dealerships to complete a self-examination and report any outstanding unclaimed property.
To incentivize dealerships to comply with their statutory obligation and become a regular annual filer for unclaimed property purposes, the State is offering the following benefits:
- Limited look back period of 10 years;
- Abatement of all penalties; and
- A one-time interest charge of only 1.38% on the total amount of unclaimed property reported.
A holder of unclaimed property that does not report in a timely fashion may be subject to annual interest in excess of 10%, and a possible penalty of $250,000 per reporting year plus 25% of the value of the unclaimed property. Typically, an audit initiated by the state against a non-filer will include the previous 15 years. Therefore, the failure to participate in the state’s Self Audit and Compliance Program carries significant risk.
The state appreciates that full and complete records for the look-back period may be a challenge and is willing to work with the dealerships to estimate exposures for back years in which the records do not exist or lack full information. In addition to vendor and employee checks, any audit will likely focus on three specific accounts including:
- Warranty and policy;
- Miscellaneous income; and
- “We owe.”
New Jersey has tentatively stated it will allow dealers until the end of the calendar year to participate in the Self Audit and Compliance Program. It is anticipated that early participants may experience less scrutiny than those dealers that wait to participate. Those that do not participate will likely be barred from any voluntary disclosure opportunities and subjected to higher scrutiny, penalties and interest.
The audit process is not to be taken lightly and will require substantial resources. Additionally, the unclaimed property laws may provide opportunities to take positions to lower the amount of property to be considered “unclaimed.”