Delaware intends to send unclaimed property compliance notices
Recently, Delaware Secretary of State Jeffrey Bullock issued a statement to service providers who have previously represented unclaimed property holders in a Delaware unclaimed property audit or Secretary of State Voluntary Disclosure Agreement Program (SOS VDA). The statement indicates that the secretary intends to mail notices to holders of unclaimed property that have been identified as being out of compliance with Delaware’s unclaimed property law. Holders will likely be identified through underreporting of unclaimed property.
Importantly, holders that do not enroll in the SOS VDA within 60 days of the notice will be referred to the state for audit. If an audit is then initiated, a holder will not be able to enter the SOS VDA program.
What is unclaimed property?
Unclaimed property can be either tangible or intangible property that becomes “dormant,” i.e., the property is unclaimed by the owner of the property for a period of time, or dormancy period. Dormancy periods generally range from one to five years, but could be longer depending on the nature of the property. Unclaimed property may include items such as bank accounts, vendor checks, payroll checks, unredeemed gift cards and many other items. All states have statutory requirements regarding unclaimed property compliance, such as prescribed dormancy periods, due diligence procedures, reporting requirements and audit procedures.
After the expiration of the dormancy period, state law requires the holder to report and escheat, or remit, the unclaimed property to the state that administers the unclaimed property law. The state receives the unclaimed property based on a set of ‘priority rules’ established through U.S. Supreme Court case law. Accordingly, unclaimed property is escheated to the state of the owner’s last known address based on the holder’s books and records. If the owner’s address is unknown, the property is remitted to the holder’s state of incorporation, commonly Delaware.
How should your business respond?
If you are otherwise not currently under a Delaware unclaimed property audit, and you receive a notice from the Delaware Secretary of State, you should consider entering into the SOS VDA program because you will not be able to enter the program if an audit is initiated. However, holders currently under an audit that was initiated on or before July 22, 2015, will be able to convert the audit examination into a review under the SOS VDA program – an option that will not be available for future audits.
If you are unsure of your filing obligations in Delaware or are reporting limited property types, you should consider speaking to an unclaimed property advisor as soon as possible.