Delaware Implements Revisions to its Administration of Unclaimed Property Audits

 

Delaware Senate Bill 11 (the “Bill”) signed into law on January 29, 2015, enacted several important changes to the way that the State of Delaware (“Delaware”) manages its unclaimed property program and will have a positive impact on companies that may be involved in audits with Delaware, either now or in the future.
Last year Delaware’s legislature established an Unclaimed Property Task Force (“Task Force”) to inquire into, examine, study, and make findings and recommendations related to improving fairness and compliance in Delaware’s unclaimed property program. The Bill included some, but not all, of the Task Force’s recommendations to reform Delaware’s unclaimed property practices and procedures.
Some of the Bill’s highlights include:

  • A requirement that the Department of Finance cannot give more than 50% of its outside audits to a single auditing firm;
  • Limiting the length of independent contractors’ contracts with the state to no more than five years;
  • Mandating a two-year waiting period before a former member of Delaware’s unclaimed property staff can join an auditing firm; and,
  • Changes to the state's administrative appeal process, including making the independent reviewer’s determination binding on the Department of Finance unless appealed by Delaware or the holder within 30 days.

Perhaps the best way to understand how these changes will impact holders is to compare Delaware’s statutes before and after the adoption of the Bill.

Delaware_Statute

In addition to the changes to Delaware’s statutes, the Bill also directed the Delaware Secretary of Finance to:

  • Develop a detailed manual containing procedural guidelines for the conduct of Delaware unclaimed property examinations by December 31, 2015, and to update Delaware’s administrative regulations;
  • Ensure that the development of the manual uses a process that includes input from appropriate stakeholders and interested parties; and
  • Ensure that Delaware’s contract auditors comply with such manual.

As welcome as these changes are to the holder community, many no doubt wish that some of the more sweeping reforms suggested by the Task Force had been adopted such as limiting the look-back periods for audit and voluntary disclosure agreements (“VDAs”) and implementing a new VDA program and a statute of limitations relating to audits to avoid holders from being audited after a reasonable record retention period has passed. However, even those wishing for more extensive reforms would agree that the changes that were adopted definitely represent a shift forward in creating a more holder-friendly environment in Delaware.

About Unclaimed Property...

As discussed in earlier True Alerts and True Updates, unclaimed property is any intangible property that is owed by a company and has gone unclaimed for a specific period of time by the rightful owner. Every company is likely to generate unclaimed property and has a legal responsibility to report and remit that property to the appropriate jurisdiction. If a holder has the name and address of the owner of the property, it reports the property to the state of the owner’s last known address. If no owner information for unclaimed property in its possession, the property is reportable to the holder’s state of incorporation. Generally, there is no statute of limitations on a holder’s unclaimed property liability, and a holder’s state of incorporation can estimate a holder’s potential liability for periods where actual records are not available. Companies not in full compliance with the state’s unclaimed property laws often have many concerns about getting into compliance, including the likelihood
of triggering interest and penalty assessments or being selected for an examination. However, once aware of the various rules and processes, every holder should consider taking advantage of the various opportunities available to get into compliance for any past-due property.

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©2015 True Partners Consulting LLC. All rights reserved. Printed in the USA. True Partners Consulting is a registered trademark in the U.S. and several international jurisdictions. We are required by regulation to inform you that any tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding U.S. federal, state, or local tax penalties or promoting, marketing, or recommending to another party any transaction or matter addressed in this communication (or any attachment). The information contained herein is for informational purposes only and is based on our understanding of the current tax laws and published tax authorities in effect as of the date of publishing, all of which  are subject to change. You should consult with your professional tax advisor to discuss the potential application of this subject matter to your particular facts and circumstances.

 

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