Delaware enacts significant unclaimed property legislation
Implements many changes recommended by unclaimed property task force
TAX ALERT |
On Jan. 29, 2015, Delaware enacted SB 11, a bill to implement recommendations of the state’s Unclaimed Property Task Force intended to improve fairness and transparency with respect to Delaware’s unclaimed property program.
The Unclaimed Property Task Force, which was established under Senate Concurrent Resolution No. 59 in June 2014, held a series of meetings in which discussions were focused on substantial concerns with the state’s unclaimed property program as currently administered, including significant perceived issues with fundamental fairness, the continuation of annual compliance once a holder is brought up to date and reunification of property with its rightful owner. As a result of these discussions and other investigations, the task force issued recommendations regarding:
- The state’s estimation methodologies
- The look-back period applied during the audit process
- Notification requirements
- The use of contract auditors
- Transparency in policies and procedures.
Delaware enacted SB 11 as a response to these recommendations, making the following changes to the state’s unclaimed property program:
- Contract auditors:
- A single contract auditor cannot be assigned to more than 50 percent of all unclaimed property examinations conducted after Jan. 1, 2015
- No agreement with a contract auditor can be longer than five years, and existing contracts for a longer period should be renegotiated downward
- Contract auditors and consultants for the state are restricted from hiring, retaining or compensating in any way any employee of the Delaware Division of Revenue or Delaware Department of Finance who functions in a senior supervisory role for a period of two years from the date that the employee leaves the employ of the state
- Independent reviewer determinations:
- Independent reviewers are required to send their findings of fact and conclusions of law by certified mail to both the Secretary of Finance and the holder, and not just the Secretary as was required under prior law, within 90 days of the conclusion of the oral hearing
- The Secretary of Finance no longer has the power to adopt or reject, in whole or in part, an independent reviewer’s determination and must send a copy of the independent reviewer’s determination to the holder
- Both the Secretary of Finance and the holder may appeal the independent reviewer’s determination to the Delaware Court of Chancery
- The escheator must now provide a written finding of fraud before the state is entitled to an unlimited period of limitations
Additionally, SB 11 directs Delaware’s Secretary of Finance to:
- Work with interested parties to develop and promulgate a procedural manual on or before Dec. 31, 2015, providing detailed guidelines for the conduct of Delaware unclaimed property examinations
- Ensure that contract auditors comply with the guidelines set forth in the manual
- Update the state’s administrative regulations to ensure greater transparency and predictability as to what should be expected by holders during a Delaware unclaimed property examination
A notable omission from SB 11 is that the legislation made no change to the state’s look-back period. Although SB 11 as introduced contained language that limited the look-back period unless a specific finding of fraud existed, this language was stricken from the final bill. Accordingly, the state can continue to look back to 1981 when auditing holders.
When fully implemented, this bill will operate to bring a greater level of fundamental fairness to Delaware’s unclaimed property program. Holders who are out of compliance and would like to enroll in Delaware’s unclaimed property voluntary disclosure program or who are susceptible to a Delaware unclaimed property audit will benefit from greater transparency and a more level procedural playing field.