In the past week, there have been two new developments in Delaware impacting the State’s unclaimed property program that may significantly affect many companies.
Final Audit Regulations Effective October 11th – 60 DAY COUNTDOWN BEGINS!
On October 1, 2017, the Delaware Department of Finance (“DOF”) issued its final audit regulations as part of the Department of Finance Abandoned or Unclaimed Property Reporting and Examination Manual, with an effective date of October 11, 2017. View the new DOF regulations as well as the Delaware Secretary of State’s VDA regulations that were published earlier this year.
As a result, October 11th begins the 60 day period during which a company that is currently under an examination by Delaware must decide whether to convert its existing Delaware audit into a Voluntary Disclosure Agreement (“VDA”) with the Secretary of State (“SOS”); or notify the State Escheator of its intent to expedite the completion of the unclaimed property examination.
Every company under examination should seriously consider filing either election for the expedited audit or VDA, as doing so will provide a 2 year period to avoid the imposition of interest and penalties. Although both choices offer the 2 year moratorium from interest and penalties, each option comes with its own unique set of potential benefits and burdens for a company making an election. Among other nuances, it’s worth noting that the SOS has the ability to amend or extend the VDA beyond the original 2 year period, where presently there is no provision to allow the DOF to extend an expedited audit.
This 60 day window closes on Sunday, December 10th, so all companies selecting either option should consider notifying the State of its decision no later than Friday, December 8th to be sure that the notice is received by the State within the deadline. Moreover, given that the filing of an election of either the VDA or expedited audit starts the two-year period by which the process must be completed, most companies may decide to delay notifying the State of their decision close to the end of the 60 day window in order to maximize the time to complete the process.
Although a company may correctly feel that either option is better that nothing, and both are a bit like being between a rock and a hard place, the analysis as to which is option is best for your company is highly fact specific, and should be carefully considered with your advisor.
Secretary of State to Send VDA “Invitations”
On September 29, 2017, Delaware’s SOS announced that within two weeks his office will begin mailing notices to companies that have been identified as being likely out of compliance with Delaware’s unclaimed property statutes. The letters will notify the holders that they have the opportunity to enroll in the SOS’s VDA Program, and that those that fail to do so “within 60 days of mailing this notice will be referred to the State Escheator for examination” (emphasis in the original).
According to the announcement, the SOS’s VDA Program was developed to provide companies that may be out of compliance with Delaware’s unclaimed property statutes an opportunity to voluntarily get into compliance before they are selected for an examination. The SOS’s announcement also stated that once an audit notice has been issued, the Department of State will have no legal ability to accept a company into the SOS’s VDA Program.
All companies incorporated in Delaware, or with a large presence in the state, that are not currently under an examination, or recently settled an audit or VDA with Delaware, should be prepared for notice from the SOS. Officers of the company should be reminded to be on the lookout for the notice so that it can be responded to within the 60 day window.
The SOS will soon be issuing notices to companies that are not currently under examination inviting them to enter into its VDA Program, while the DOF has finalized its regulations, providing a 60-day window from October 11, 2017 for companies that are currently under an examination to elect to convert an audit into a VDA or expedited audit.
Whether you’re under an examination and deciding whether a VDA or an expedited audit would be best given your specific facts and circumstances, or you receive a VDA “invitation” from the Secretary of State, True Partners Consulting’s Unclaimed Property Management Solutions Team has the expertise and experience to help you through this complex decision making process. True Partners will continue to monitor other legislation impacting your company as it arises, and will release relevant updates as additional information is available.
Cathleen A. Bucholtz
Robert M. Tucci