California’s Governor recently signed the Budget Act of 2019 (SB 109). Within the Act, there is a provision which requires the Controller to provide the Joint Legislative Budget Committee and the chairpersons of the fiscal committees in each house of the legislature with a report on plans to provide for a one-time unclaimed property amnesty, or other options to increase compliance with the unclaimed property law in lieu of an amnesty program. The Controller must also provide options for increasing the return of unclaimed property to rightful owners. The due date for report is March 1, 2020. The State did offer an Amnesty Program about 20 years ago, for a year. Many Holders took advantage of it It was so successful and brought in so much unclaimed property penalty and interest free, the State extended the Program for a year.
Generally intangible personal property for which there has been no owner generated activity for a specified period of time called “dormancy period” or “holding period”, is considered dormant or unclaimed.
Examples of intangible unclaimed property include:
-Uncashed payroll or commission checks
-Uncashed accounts payable/vendor checks
-Accounts receivable credit balances
-Gift certificates/gift cards
-Customer merchandise credits, layaways, deposits, refunds or rebates
-Suspense accounts -Unused/outstanding benefits (non-ERISA)
-Goods received but not invoiced
-Miscellaneous income/bad debt expense accounts
A Holder (Company) can be assessed Fines and/or Interest Penalties for Not Complying with State Unclaimed Property Laws.
1) Failure to Report and Remit Unclaimed Property.
2) Failure to Comply with the Entire State Unclaimed Property Statute.
– Interest penalty generally assessed at 10%–25% of property value
– Civil/Criminal penalties for failure to report/remit/deliver
OR filing a fraudulent report may include:
^ $100 – $200 per day ($10,000 maximum)
^ Varies from $1000 – $25,000 fine plus some States access an additional 25% of the value of the property
^ Some State laws include non-compliance as a Class B misdemeanor and/or jail term
STATE PRIORITY RULES FOR REPORTING UNCLAIMED PROPERTY –
In 1965, The United States Supreme Court, in Texas v. New Jersey, established these unclaimed property State priority reporting rules:
1) Unclaimed intangible property is required to be reported to the State of the property Owner’s last known address as reflected on the Holder’s books and records;
2) Unclaimed intangible property is required to be reported to the Holder’s State of Incorporation if the Owner’s address is unknown, in a foreign Country, or in a State that exempts the property type.
– Waiver of interest and penalties on property reported late or past due.
– Reduced look-back period. Normally 10 years plus the dormancy period.
– The company has more control of the audit/review process.
– The opportunity is there to correct any issues or discrepancies.
– If estimation is used, the company has more of a say in the process.
– The company’s specific facts and circumstances are applied throughout the self- audit/VDA process.
With more and more States jumping on the audit bandwagon, below are issues that could trigger the dreaded unclaimed property audit:
1) Non-reporting – A company has not been reporting their unclaimed property and has never reported in the past.
2) Property owners contacting the state to claim their funds.
3) Submitting negative reports (a report saying this is no unclaimed property to report) or submitting negative reports in back to back years.
4) Not reporting all property types required. Submitting reports with only vendor checks and no accounts receivables, miscellaneous type property or payroll checks.
5) Not reporting the type of property or value of property comparable type companies are reporting.
6) Spikes and dips in reporting. Is company reporting consistent?
7) Has company been in the news. Has one company acquired another? Is a company making a big yearly profit?
8) Industry under audit. Are state audits concentrating on the retail, hospitability, manufacturing, insurance, real estate industry, etc.
9) State unclaimed property employees talk amongst themselves informally at industry trade shows/seminars/conferences.
Based on recent correspondence with the State of Delaware and the Holder community, it has come to PEACC’s attention that Delaware’s Secretary of State has recently mailed opportunity letters to participate in the State’s Voluntary Disclosure Agreement (“VDA”) program. These notices were mailed to hundreds of companies throughout the United States who are incorporated in Delaware. As stated in the State’s recently revised laws and regulations, companies receiving the VDA letter have 60 days to respond. Companies not responding to the letter will be referred to the Delaware Department of Finance for an unclaimed property audit. Historically, the State turns to aggressive third-party, contingency fee paid auditors to perform these audits.
With this new letter notification initiative in mind, it is a best practice for any companies incorporated in Delaware, not fully compliant with the State’s unclaimed property rules and regulations, to keep an eye out for these VDA notices so they do not miss this opportunity to participate in the State’s VDA program. PEACC advises all companies incorporated in Delaware (not just the ones receiving the letter) ensure they are in full compliance with the unclaimed property State laws and requirements as they may again begin to aggressively enforce their reporting requirements through State and State sponsored audits.
PEACC is advising companies to let their mailrooms and other appropriate personnel know to keep an eye out for any correspondence letters from the State of Delaware so this opportunity to report through a VDA does not pass them by. Missing this opportunity will lead to an unclaimed property audit.
For further information about this Delaware VDA letter writing campaign or the State’s VDA program and its benefits, please contact PEACC at 410.303.5510 for a free confidential consultation.
California VDA Program Update –
California A.B. 2773, a bill to establish an unclaimed property voluntary disclosure program in the state has recently been pulled. The California State Controller’s Office has expressed some concerns with the bill’s language. The bill’s author, Assemblyman Dante Acosta, has since decided to pull the bill from consideration.
However, there is hope that the the bill will be reintroduction during the next California legislative session.
The State of California recently introduced Bill (AB 2773) that, if passed, would create a Holder friendly Voluntary Compliance Program. This Program would allow Holders to report and remit past due property to the State without the threat of interest and penalties being assessed. If the Bill is passed, Holders not fully compliant with California’s unclaimed property regulations would have the opportunity to get compliant with a reduced look-back period and without the threat of interest or penalties being charged for past due property,
It has been almost twenty years (2001) since California last offer a similar amnesty reporting program. This Program was initially offered for one year, but it was so lucrative for the State, they extended it another year through 2002. The State took in millions of dollars as Holders chose to take advantage of it.
As an incentive for Holder compliance, most States currently offer either a formal or informal voluntary compliance program, normally known as a VDA (“Voluntary Disclosure Agreement”).
However, California currently is one State that will automatically assess at 12% per annum interest penalty on all past due property from the date it should have been reported. A Holder may request to appeal this 12% interest penalty, but it must be requested individually after the assessment. However, this request for abatement must be for good cause.
If AB 2773 is passed, it would allow the State to waive interest and penalties for Holders accepted into the Program and participating in good faith. The Program would be open to all Holders who aren’t currently under audit or have been selected for audit by the State or one of their agents. Once accepted into the Program, another benefit is a shortened look-back period of ten previous report years from the date the Holder is accepted into the Program. Currently, audits may go back to the Holder’s inception.
Bill AB 2773 was referred to California’s Judiciary Committee on March 20, 2018. If passed, a Holder would have through January 1, 2024, to enter and participate in this formal VDA amnesty program.
If enacted, this Bill would benefit any Holder conducting business in California, incorporated there, has a large amount of property due to the State or has historically under-reported. The Bill has gained major support from the Holder community and organizations throughout the Country.
PEACC will continue to monitor the progress of AB 2773 and hopefully the passing of it.
For Holder/Companies currently under a Delaware unclaimed property audit, below is a link to the form required to be completed and submitted in order to convert the audit into a Voluntary Disclosure Agreement (“VDA”):
(Please cut and paste link into your browser)
Please note: there are time constraints for converting a Delaware audit into a VDA.