Delaware is taking action to enforce unclaimed property reporting, and companies, especially those incorporated in Delaware, need to be prepared. Companies should be on the lookout for one of three types of unclaimed property notices:
- Verified report notices: Most recent campaign sent in August 2024, with future rounds in the coming months
- Voluntary disclosure invitation letters: Nov. 15, 2024
- Audit notices: Mailed the week of Oct. 25, 2024
What companies should know
The types of Delaware unclaimed property enforcement programs above are listed in order of least to most demanding. The verified report is a limited one-year review of the most recent filing period and requires an officer of the company to confirm accuracy of its 2023 unclaimed property report. Voluntary disclosures and audits involve a much longer review, with a 10-year lookback. Additional factors make an audit more intensive than the voluntary disclosure program, such as third-party auditors, mandatory interest, open-ended timeline, and more stringent review guidelines.
While the requirements of the Delaware unclaimed property enforcement programs vary, companies must respond timely to any initial notice to avoid escalation. Recipients of a verified report notice, also known as the Section 1170 Compliance Program, have 30 days to respond or request an extension, after which Delaware can require voluntary disclosure, or worse, initiate an audit. Additionally, companies have 90 days from the date on the notice to enroll in the voluntary disclosure program before being referred to audit. Companies that miss these crucial deadlines could be subject to a much more extensive review than they would have faced if they met the 30-day and 90-day deadlines.
Companies under audit should consider whether to complete the standard audit or formally request an expedited audit. The primary benefits of an expedited audit are that the audit is completed in two years and interest on amounts due is capped at 1%. These benefits can result in significant cost savings for companies that otherwise might endure a lengthy standard audit with mandatory minimum interest of 20%.
Recent law
Delaware recently enacted several updates to its unclaimed property law with Senate Bill 267, which is effective Aug. 15, 2024, for foreign jurisdictions and amended reports.
Foreign jurisdictions
- The new law defines “foreign jurisdiction” as “any foreign country or jurisdiction or subdivision of a foreign country or jurisdiction, which is not a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.”
- Delaware’s ability to take custody of property with an address in a foreign jurisdiction now is limited. Delaware can take custody only if the foreign jurisdiction does not provide for custodial taking of the property.
- The new law clarifies that property exempt from custodial taking in the foreign justification is not subject to reporting to Delaware.
Crowe observation
The clarifying language narrowing claims to foreign-addressed property better aligns Delaware law with the Uniform Law Commission’s 2016 Revised Uniform Unclaimed Property Act.
Amended reports
- Language added to Delaware’s unclaimed property law clarifies that a company that files an amended report is not entitled to a return or refund of property if any one of the following are applicable:
- Delaware already has paid a claim for the property reported
- The original report was filed as part of an examination or voluntary disclosure
- The amended report was filed to correct the application of the cost of goods sold deductions more than three years after filing
- The law also provides that a company not entitled to a return or refund of property does not have standing to sue Delaware for return or refund of the property as an owner of the reported property.
Crowe observation
Companies that subsequently refunded property to an owner that was originally filed as part of an examination or voluntary disclosure should consider contacting Delaware’s Unclaimed Property Claims Unit and filing a holder reimbursement claim.
Looking ahead
Companies that receive a verified report notice, voluntary disclosure invitation, or audit notice from Delaware should be prepared to quickly evaluate their unclaimed property records and respond. Companies should consult with their tax advisers to evaluate how to respond to notices and understand their options and the risk of escalation for failure to respond. Companies should evaluate their records and take necessary steps to comply with Delaware’s unclaimed property filing requirements so they’re ready if they do receive a notice.
