Delaware unclaimed property updates

Background

All 50 states, the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands have unclaimed property statutes. Companies must regularly review their books and records to determine if they hold unresolved amounts with vendors, customers, and employees that could represent unclaimed property. Unclaimed property is reportable after a dormancy period of one to five years, depending on the state and property type. Examples of unclaimed property include uncashed accounts payable and payroll checks, unresolved customer credit balances, abandoned bank accounts, and unused gift cards. Failure to comply with state unclaimed property law can trigger state audits conducted by third-party audit firms and result in penalty and interest assessments.

Voluntary disclosure invitation letters

The Delaware secretary of state announced that it will be sending out a new round of invitations to the state’s voluntary disclosure program on July 22, 2022. Invitations typically are sent to Delaware-domiciled companies and addressed to the CFO. Companies that do not enroll in the secretary of state’s voluntary disclosure program within 90 days of the date on the invitation are automatically referred to the Department of Finance for a third-party audit.

Companies should consider Delaware’s voluntary disclosure program because it is a faster and less expensive process to complete than an audit. Generally, the voluntary disclosure program is more business-friendly in that it is self-directed by the company, there is a two-year time frame for completion, applicable penalties and interest are waived, and more favorable guidelines for review apply. The offer to waive interest through voluntary compliance is particularly appealing because companies selected for Delaware unclaimed property audit after Aug. 1, 2021, which is the effective date of Delaware Senate Bill 104, face a minimum 20% interest assessment on unclaimed property identified during the audit.

Delaware Senate Bill 281

Delaware Senate Bill 281 was signed into law on June 30, 2022. The bill clarifies various aspects of Delaware’s unclaimed property law, including updates to the definition of “property,” confirmation of the appeals process, and the treatment of security-related property (for instance, liquidation, notice, and claims). The bill also permits the Delaware state escheator to issue a notice of examination to holders that have failed to complete a verified report or compliance review within the statutory deadline for completion.

As a result, companies participating in a verified report or compliance review with the Delaware Department of Finance that fail to respond to requests or complete a review timely could be transitioned to an audit. Companies selected for audit are not afforded an opportunity to opt into or participate in the state’s voluntary disclosure program.

To minimize unclaimed property exposure, companies should review their unclaimed property footprint and filing requirements and quickly evaluate and, if necessary, respond to formal communications regarding Delaware unclaimed property. Companies should consider the benefits of entering the voluntary disclosure program and consult their advisers to help weigh the pros and cons.