How does California enforce unclaimed property, and is there a way back into compliance?
Edvin Givargis Published 6 minute read
The short answer
Enforcement runs on three rails, and since 2022 there has been a statutory way back in. The first rail is interest: Code of Civil Procedure section 1577 imposes 12 percent per year on property not reported, paid, or delivered on time, running from the date each item should have been reported, relieved only for reasonable cause. On a payable that escheated a decade ago, the interest can rival the property. The second rail is visibility: since the 2021 tax year, California business income tax returns, Forms 100, 100S, 100W, 565, and 568, have asked whether the filer has previously filed a Holder Remit Report with the State Controller's Office, when the last report was filed, and how much was remitted, and the Franchise Tax Board is authorized to share the answers with the Controller. A nonfiler now declares itself, under penalty of perjury, every spring. The third rail is enforcement in earnest, up to and including the Attorney General: in September 2024 the Department of Justice announced a $7.7 million False Claims Act and Unclaimed Property Law settlement with a healthcare company that had held unclaimed patient overpayments for years without reporting them. The way back is the Voluntary Compliance Program of section 1577.5, administered by the Controller, under which the state waives section 1577 interest for a holder that enrolls, completes the program's training, reviews at least ten years of records, notifies owners, and reports and remits on the program's schedule. The gate is unforgiving in both directions: a holder already under examination, or that has received an audit notice, cannot enroll, so the program rewards the company that moves before the state does.
The regime's hard edges
California's Unclaimed Property Law starts from breadth. There is no business-to-business exemption, so credits and uncashed checks between commercial parties escheat on the same terms as consumer property, a posture that surprises holders whose other filing states exempt ongoing business relationships. Dormancy runs three years for most intangible property under section 1520(a), and only one year for wages under section 1513(a)(7), which makes payroll the first place a California exposure matures and the first place an examiner looks. Gift certificates sit largely outside the regime, a rare taxpayer-favorable carve-out in an otherwise holder-hostile statute. The Controller's reporting cycle is also structurally unusual: California uses a two-report system, a notice report followed by a remit report in the following year, with statutory owner-notification duties in between, so a holder coming into compliance is committing to a process, not an envelope.
Interest is where the regime's patience runs out. Twelve percent per year, simple as arithmetic and merciless in application, accrues item by item from each item's original reporting deadline. Reasonable cause relief exists, and the Controller can grant it, but a multi-year nonfiler seeking relief on the whole book is asking for grace the statute does not presume.
The return questions changed who knows what
The quiet revolution in California enforcement was Assembly Bill 466 (Stats. 2021, ch. 92). Beginning with 2021 returns, every corporation and every partnership or limited liability company filing in California answers three questions: has the entity previously filed an unclaimed property Holder Remit Report with the State Controller's Office; if so, when was the last report filed; and what amount was last remitted. The Franchise Tax Board's role, by its own description, is informational; the answers do not affect return processing, and the Board is authorized to share them with the Controller for unclaimed property purposes. The effect is that the Controller no longer has to find nonfilers; they self-identify annually, in a signed filing, and the population that answers no while carrying decades of voided checks has handed the state both the lead and the paper trail. Audit selection built on those answers, including examinations staffed by third-party audit firms, is the natural next step, and holders should assume the answers are being read.
The Attorney General's settlement announced September 24, 2024 shows the ceiling of the enforcement range. According to the Department of Justice's release, the company had held unclaimed property, principally patient overpayment balances, since as early as 2001, filed its first reports only in 2018 after learning of the investigation, and underreported even then; the resolution ran through the California False Claims Act, with $1.5 million of property remitted to the Controller and the balance of the $7.7 million in penalties and interest. The lesson for every holder reading it: once the state's theory shifts from late reporting to knowing retention, the conversation is no longer about interest.
The Voluntary Compliance Program, and its gate
Section 1577.5 gives a holder the exit the regime historically lacked. Enrollment is by application to the Controller, and the statute disqualifies four categories at the door: holders under examination or in receipt of an audit notice, holders subject to civil or criminal prosecution involving unclaimed property compliance, holders with an interest assessment unpaid from the previous five years, and holders granted an interest waiver within the previous five years, with limited exceptions tied to mergers and acquisitions. An enrolled holder must complete the Controller's educational training within three months of enrollment notification, review its books and records for at least the preceding ten years, make reasonable efforts to notify owners at least 30 days before reporting, file its initial report within six months of enrollment, extendable to 18 months for cause, and then complete the remit-report cycle and pay or deliver the property on the program's schedule, roughly seven to seven and a half months after the Controller receives the initial report. A holder that completes the sequence receives what the statute promises plainly: the Controller shall waive the interest that section 1577 would otherwise assess.
Read together with the return questions, the program's design carries a clear message about sequencing. Every California business filer is now on record about its unclaimed property history, the Controller holds the data to select examinations, and the interest waiver is available only to holders who arrive before the examination does. The window between answering no on a return and receiving the letter that closes the program's gate is the whole planning opportunity.
Practice notes
For any California business that has never filed a Holder Remit Report, reconcile three things before the next return is signed: what the returns have been answering to the unclaimed property questions, what the books actually show in voided checks, stale credits, unclaimed wages, and suspense balances, and whether the ten-year record base needed for the Voluntary Compliance Program exists. If exposure is real, the order of operations is program enrollment first and process fixes second, because prospective compliance without the program leaves the 12 percent interest attached to the past, and an audit notice ends the option entirely. Wage items deserve special speed given the one-year dormancy period. And treat the annual return questions as the compliance certification they have become; an answer inconsistent with the ledger is no longer a dormant inconsistency, it is a shared one. G&G State Tax Group provides unclaimed property consulting, including Voluntary Compliance Program enrollment and representation before the State Controller's Office, alongside its state and local tax practice.
This article states the law as of September 25, 2026
Statutes, rates, thresholds, and agency practice change, and a different set of facts can change the answer. Before acting on anything discussed above, contact G&G State Tax Group, or another state and local tax adviser, to confirm what has changed since this was written and how the rules apply to a specific situation.
This publication is informational in nature and is not, and should not be considered, legal, accounting, tax, or other professional advice for any person or situation. Correct application of tax law depends heavily on the facts and circumstances in each case, and G&G State Tax Group, LLC assumes no liability in connection with the use of this information, and is not obligated to inform any reader of changes in the law or other factors that could affect the information contained herein.