California’s Legislature Entertains Long-Overdue Unclaimed Property Voluntary Disclosure Program

| 4/12/2018
California’s Legislature Entertains Long-Overdue Unclaimed Property Voluntary Disclosure Program

Any business can be the unsuspecting target of an unclaimed property audit, and because most unclaimed property is never claimed by the owner, many states have intensified enforcement efforts in order to generate revenue without raising taxes.

To encourage compliance, virtually every state will permit a holder to proactively address past-due unclaimed property reporting obligations through voluntary disclosure. Under a typical voluntary disclosure agreement (VDA), a state will abate otherwise applicable penalties and interest, limit the look-back period subject to reporting, and agree to not audit prior years.

California is possibly the only state that does not offer either a statutory or informal unclaimed property VDA program. During the most recent two-year amnesty period, which expired in December 2002, approximately 5,000 holders reported nearly $200 million in California unclaimed property.

Under current law, interest imposed by California on past-due unclaimed property is excessive. Interest of 12 percent per year is imposed on the value of past-due property beginning on the date the property should have been reported. Stiff penalties apply to the willful failure to comply with the state’s reporting requirements. The lack of a VDA program combined with the hefty interest and penalties discourages holder compliance, confounding the primary purpose of state’s unclaimed property statutes, which is to reunite owners with their property.

The good news is that in February state assembly member Dante Acosta introduced legislation, Assembly Bill (AB) 2773, that would create an unclaimed property voluntary disclosure program in California. Under the proposed program, otherwise applicable interest and penalties would be abated for holders that complete a VDA submission within 12 months of being accepted into the program. Holders under an existing audit or compliance investigation would be ineligible to participate. If enacted, the voluntary disclosure program presumably would begin Jan. 1, 2019, and remain in effect until Jan. 1, 2024.

Assembly member Acosta is scheduled to present AB 2773 to California’s Assembly Committee on Judiciary in late April 2018. The bill is receiving considerable pushback from the State Controller’s Office (SCO), and Assemblyman Acosta’s office is in discussions to work through the SCO’s concerns. At this time, it is uncertain whether the bill will move forward. Although both holders and property owners – as well as the state – clearly would benefit from an unclaimed property VDA program, the California legislative process is arduous, and the status of AB 2773 remains uncertain.

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Chris Hopkins
Partner, Unclaimed Property Services Leader
Jamshid Ebadi
Jamshid Ebadi
Office Managing Principal, Denver