The deadline is quickly approaching for participation in the Delaware Secretary of State’s Unclaimed Property Voluntary Disclosure Program. Businesses have until June 30, 2014, to enroll in the program, and another year to complete the reporting process. Any business incorporated or formed in Delaware, with a headquarters or significant business in Delaware, or that has recently acquired a Delaware entity may want to seriously consider participating in the voluntary disclosure program if the business has not maintained its Delaware unclaimed property compliance.
Although unclaimed property was historically a concern primarily for banks and insurance companies, every company now has potential exposure. Unclaimed property now encompasses unredeemed gift cards and rebates, accounts payable, receivables credits, unidentified remittances, uncashed payroll or dividend checks, inactive stock accounts, and many other intangibles.
The Wilmington News Journal reported on May 17, 2014, that Delaware has collected more than $4.3 billion in unclaimed property in the last decade, with more than $1.6 billion coming from audits of corporations. Unclaimed property collections now make up about 15 percent of the state’s annual budget, the third largest source of revenue for the state. For that reason, Delaware has been particularly aggressive in collecting unclaimed property, both by using extensive look-back periods and by contracting with third-party auditors on a contingent fee basis. The disclosure program offers some protection from these otherwise harsh policies.
By enrolling in the voluntary disclosure program before June 30, 2014, a company is able to shorten the look-back period from 1981 to 1993, which can result in substantial savings given the way Delaware extrapolates where records do not exist for a year. Further, by enrolling in the program, a company is able to obtain abatement of penalty and interest.
Unlike Delaware’s prior voluntary disclosure program, which was administered by the Department of Finance, the current program offers a release of the state’s right to audit for years covered by the agreement and the years prior to the disclosure, 1981 to 1992. This is a significant change, as many corporations that voluntarily disclosed unclaimed property in the prior program found themselves audited by Delaware’s contingent-fee auditors shortly thereafter. Given this considerable restriction on the aggressive behavior of Delaware’s auditors, companies may want to consider locking-in these benefits and enrolling in the program before it expires.
The information in this blog is for general informational and educational purposes only. Postings are not solicitations or legal advice. The reader should not rely or act upon any information in this site without seeking professional legal counsel or advice from his or her tax professional.
