Proposed Changes to Delaware Regulations
Two versions of the highly anticipated proposed regulations to Delaware’s Abandoned or Unclaimed Property Law were released: one by the Delaware Department of Finance (“DOF”) on April 1, 2017, and another by the Delaware Department of State (“DOS”) on April 7, 2017.
The stated goal of the proposed regulations was clear: Draft regulations regarding estimation methods that would create consistency in any unclaimed property examination or voluntary disclosure agreement (“VDA”). Specific items to be addressed were: permissible base periods; items to be excluded from estimation calculations; aging criteria for outstanding and voided checks; and, the definition of what constitutes complete and researchable records.
In addition to the DOF’s set of proposed regulations, on April 7, 2017, the DOS also released a set of proposed regulations along with the instructions and the official form to be used for a holder to convert an unclaimed property audit to a VDA.
April Fools’ jokes aside, based on the drafts of the proposed regulations and the VDA conversion form, the holder community may have gotten exactly what it was promised, but nothing more.
On February 2, 2017, Delaware Governor John Carney, Jr. signed Delaware Senate Bill 13 (“SB 13”) into law, which effectively rewrote the provisions of the Delaware (“State”) unclaimed property program (see prior True Alert, February 3, 2017). Among the provisions enacted by SB 13 was 12 Del. C. § 1176 (b), which required that the State Secretary of Finance work with the Secretary of State to draft and release proposed regulations by July 1, 2017 regarding the use of estimation in audits or VDAs with the State.
Like many of the provisions in SB 13, both sets of draft regulations also appear to be part of the State’s response to the recent decision in Temple-Inland, Inc. v. Cook et al., 2016 U.S. Dist. Lexis 83567 (D. Del. June 28, 2016), where the Delaware District Court rebuked the State regarding the estimation methodologies it used when performing unclaimed property audits.
Highlights of Proposed Regulations
The bulk of the DOF’s proposed regulations consist of the Delaware Department of Finance Abandoned or Unclaimed Property Program Manual, which provides guidelines for audits, while the DOS’ VDA guidelines are contained within the Delaware Department of State Abandoned or Unclaimed Property Voluntary Disclosure Agreement Program Estimation Regulations.
Contained within them, and of most interest to the holder community, is the State’s response to some of the specific issues raised in Temple-Inland, as well as the directive to create estimation regulations per 12 Del. C. § 1176(b):
These and other differences that exist between the DOF’s and DOS’ proposed regulations are likely to be addressed during the public comment period ending on May 3, 2017.
Converting an Audit to a VDA
In addition to requiring estimation guidelines be drafted for audits and VDAs, SB 13 also provided in 12 Del. C. § 1172(b) that holders under audit that meet certain criteria may convert their audit to a VDA under the DOS’ VDA program per 12 Del. C. § 1173.
The option to convert an audit to a VDA has been eagerlyanticipated by the holder community. However, most agree that while the VDA instructions and form do not provide much new information that had not already been addressed, it did confirm a few things:
What This Means To Holders
The general consensus is that both sets of the proposed regulations read more like a list of general procedural guidelines versus detailed procedures on proper estimation methodologies. While less robust than many had hoped for (e.g., estimation based solely on Delaware addresses, foreign, and owner unknown property), the proposed regulations do at least document what many see as the State’s existing estimation practices.
Holders and their advocates wishing to provide comments or suggestions regarding the proposed regulations must submit them to the State by Wednesday, May 3, 2017.
For holders under an examination, it’s important to be aware that once the DOF’s and DOS’ regulations have been finalized (expected to be on or around June 1st), the 60 day countdown begins for holders to elect to convert their existing State audit into a review under the DOS’ VDA program, or to notify the State Escheator of their desire to expedite their audit pursuant to 12 Del. C. § 1172.
Both options provide for a waiver of interest and penalties for holders that successfully fulfill the terms of their election. However, as outlined above, holders wishing to convert their audit into a VDA need to be aware of their responsibilities under the DOS’ VDA program, and the risks of failing to meet the proposed criteria.
The proposed regulations provide a 60-day window from the date that the regulations are finalized (expected to be on or around June 1st) to elect to convert an audit into a VDA. True Partners Consulting’s Unclaimed Property Management Solutions Team has the expertise and experience to help you through this complex decision process. In addition, our team is available to discuss the impact that the regulations and new VDA guidelines may have on your specific fact pattern. In the future, True Partners will continue to monitor the proposed regulations and other legislation impacting your company as it arises, and will release relevant updates as additional information is available.
Cathleen A. Bucholtz
Robert M. Tucci