United States

Delaware promulgates new unclaimed property regulations

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UPDATE: On Oct. 1, 2017 the Delaware Department of Finance published final regulations regarding the unclaimed property audit and examination methodology scheduled to become effective on Oct. 11, 2017. The regulations are promulgated pursuant to the enactment of the state’s unclaimed property overhaul occurring through Senate Bill 13 and amended by Senate Substitute 1 for Senate Bill 79 (SS1/SB79). The final regulations, first proposed on April 1, 2017, adopt the proposed regulations with minor revisions.

Two provisions regarding unclaimed property examinations directly impact holders under examination due to publication of the final regulations. Both provisions are in Section 1172 of the revised law.

1.    Examinations authorized on or before July 22, 2015

The revised unclaimed property law provides that holders under examination authorized by the state escheator, on or before July 22, 2015, may convert the examination into a review under the Delaware Secretary of State Voluntary Disclosure Program (SOS VDA). The holder under examination must notify both the state escheator and secretary of state in writing within 60 days of the adoption of examination regulations. Accordingly, with the adoption of final regulations scheduled for Oct. 11, 2017, qualifying holders will have 60 days to convert their current examinations into the SOS VDA. Holders will not be able to convert examinations after the 60 day period.

2.    Examinations authorized before Feb. 2, 2017

The revised unclaimed property law also provides that persons, under examination authorized before Feb. 2, 2017, may expedite the completion of a pending examination by providing notice to the state escheator within 60 days of the adoption of final regulations. The adoption of final regulations are scheduled to occur on Oct. 11, 2017 and, therefore, holders will have 60 days from that date to request an expedited exam. The final regulations provide that the state will publish a form for holders intending to expedite the exams.

Miscellaneous changes to the final regulations

Stored value cards or gift cards

Although the regulation provides a detailed a method to determine the cost of a stored value card or gift card using information from the holder’s annual federal income tax return, the rule also allows for other reasonable alternative calculations to be considered by the state escheator.

Third-party auditors

The regulations include a provision that the state shall conduct periodic reviews of the auditor’s conduct, processes and procedures to ensure they act in accordance with protocol and applicable statutes and regulations. In addition, the rules address the holder’s opportunity to enter into a non-disclosure agreement with the assigned auditor, however, the agreement on terms must be settled within 60 days of the date on the Notice of Examination Letter.  Furthermore, the rules prohibit the third-party auditors from using Delaware’s authorization to conduct an examination to solicit examinations from other jurisdictions.

Penalty and interest abatement

As provided in the revised unclaimed property law, penalties and interest may be abated by the state escheator if it is determined that the holder acted with “good cause.” The final regulations explain that the state escheator may determine good cause by reviewing filing history, holder responsiveness or evidence that the holder used ordinary business care in its compliance efforts.

Takeaways

The final regulations address a number of concerns from the holder and unclaimed property service provider community. However, with only minor changes to the proposed estimation regulations, it would not be surprising to see additional litigation on these issues, especially considering the Temple-Inland decision.   

Holders currently under an audit need to be very aware of the deadlines and eligibility to convert existing examinations to the SOS VDA or to decide whether an expedited examination is appropriate. Further, holders incorporated or formed in Delaware that are not in compliance with its unclaimed property laws should consider proactively enrolling in the Delaware SOS VDA program.

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ORIGINAL ALERT: Delaware Releases Proposed Unclaimed Property Regulations

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