Corporate Close Up: Delaware Substantially Revises Administration of Unclaimed Property Audits

Recently enacted Delaware legislation significantly revised the administration of Delaware’s unclaimed property laws by placing several limitations on unclaimed property audits performed by outside contractors and amending the administrative appeals process. [S.B. 11, enacted 1/29/15] 

The law, which implements certain recommendations of the Task Force to Study and Make Findings and Recommendations to Improve Fairness and Compliance in Delaware’s Unclaimed Property Program, follows a string of recent litigation revolving around unclaimed property audits conducted by a third-party contractor.

S.B. 11 allows Delaware to conduct unclaimed property examinations through outside contractors, but requires the state to adhere to certain limitations when doing so. Under the legislation, no contractor may be assigned more than 50 percent of the unclaimed property exams undertaken after Jan. 1, 2015. It also limits the term of the independent contractor’s contract with Delaware to five years.

In addition to limiting the number and term of contracts with outside auditors, the legislation prohibits the contractors from employing or compensating senior members of Delaware’s Division of Revenue or the Department of Finance for their work or involvement with unclaimed property audits for two years after the official stops working for the state. According to the committee report published by the Delaware House of Representatives’ Economic Development/Banking/Insurance/Commerce Committee, this limitation was included “in order to create and preserve a positive public image” for the state.

S.B. 11 also amends the amends the administrative appeal process regarding the assessment of unremitted abandoned or unclaimed property, most notably by making the independent reviewer’s determination binding on the department unless it is appealed to the Delaware Court of Chancery by either the state or the property holder within 30 days. Previously, the Delaware Secretary of Finance had the discretion to adopt or reject the independent reviewer’s findings, which could then be appealed by the property holder.

The amended administrative provisions also require the independent reviewer to simultaneously send its determination to the secretary and the property holder by certified mail within 90 days of the oral hearing or post-hearing briefing, whichever is later.

Finally, the legislation directs the secretary to develop a detailed manual containing procedural guidelines for conducting unclaimed property examinations and to update its regulations accordingly. The secretary must then ensure that Delaware’s contract auditors comply with the newly developed manual.

Because Delaware often serves as a model for other states addressing unclaimed property issues, it will be interesting to see whether these changes spark a trend towards increased fairness and accountability among the states in coming months.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you think other states will follow in Delaware’s footsteps and amend their unclaimed property audit procedures?

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