Press Room: Tax Release

May 14, 2013

Amended Unclaimed Property Voluntary Disclosure Program

Delaware House Bill 2

The State of Delaware has enacted legislation - House Bill 2 (HB 2). It is applicable to every legal entity incorporated or created under the laws of Delaware or doing business in Delaware to extend the time period for parties that have not regularly reported abandoned and unclaimed property to do so through the voluntary disclosure program (VDA). Without the VDA, parties are required to report abandoned and unclaimed property back to 1981, whereas if a party participates in Delaware’s amended unclaimed property VDA, the party is required to report abandoned and unclaimed property only back to 1996 or 1993. As such, a company can substantially reduce its exposure to very significant penalties and interest charges by filing under this program.

HB 2 extends the time frame for parties to obtain the reduced look-back period under the VDA. The Amended VDA includes the following:

  • Property holders that send a written request to enter into the unclaimed property VDA on or before June 30, 2013 and pay in full or enter into a payment plan by June 30, 2015 will receive the limited look back period starting with 1996.
  • The limited look back period starts with 1993 for those abandoned property holders who send a written request to enter into an unclaimed property VDA after June 30, 2013 and on or before June 30, 2014 and pay in full or establish a payment plan on or before June 30, 2015.
  • Interest and penalties will continue to be waived, unless property reported on a VDA is materially under-reported.
  • Parties that had already entered into a VDA before July 2012, are allowed to participate in the amended VDA for property types, periods or both not included in a prior VDA or for a holder, its subsidiaries or related parties not included in the prior VDA.

Unclaimed property includes various types of property (tangible or intangible) not claimed by the rightful owner for a period of time specified by state law. Once the property has exceeded the dormancy period it becomes abandoned property. The holder of the unclaimed property is required to file a report listing the abandoned property and pay to the state of the lost owner’s last known address. The dormancy periods vary from state to state, however, in Delaware the dormancy period is 3 or 5 years depending on the type of property. The following are examples of property that is subject to the three and five year dormancy period:

  • Three years – Stock, bonds, interest, dividends, cash, coupon interest, and any distributions made with respect to such property.
  • Five years – Uncashed checks, rebates, credit balances, overpayments, refunds, unused gift card or pre-paid card balances.

The State of Delaware has a large stake in the success of unclaimed property collection efforts because if there is no last known address for the lost owner, the state of incorporation of the entity holding the property takes the property. This is significant because Delaware is a common state of incorporation for many corporations.

The penalties and interest for failure to comply with Delaware’s abandoned and unclaimed property laws can be very significant. The maximum amount of penalty for failure to file is 50%, an additional 25% for failure to pay and finally a maximumt  interest assessment of 50%.

As noted, Delaware has the authority to go back to periods dating back as far as calendar year 1981. This amended VDA reduces the potential exposure by changing the beginning of the compliance period from 1981 to as late as 1996. Delaware is one of the most aggressive states in the Union when it comes to pursuing unclaimed property. Given the significant financial benefits offered through this program, WTAS recommends all companies review their business operations to determine if they have any unclaimed property exposure. Our professionals can assist by:

  • Inquiring about typical business activities that give rise to unclaimed property exposure;
  • Determining open filing periods and quantifying potential exposure;
  • Educating companies on alternatives to mitigating the exposure and recommending the best course of action for resolution; and
  • Assisting the companies with participating in the VDA program and developing processes to ensure prospective compliance.

Since the penalty and interest can cause the assessment against a company to more than double, we recommend companies consider the benefits of participation in the Delaware unclaimed property VDA for any Delaware-sourced abandoned and unclaimed property.