Corporate Close-Up: Delaware Senate Passes Bill Making Significant Changes to the State's Unclaimed Property Law

On June 18, 2015, the Delaware Senate passed S.B. 141 to continue improvements to the state's unclaimed property program on the basis of recommendations prepared by the Unclaimed Property Task Force established by the legislature a year ago.  The bill is now under consideration by the Economic Development/Banking/Insurance/Commerce Committee in the Delaware House.

The Senate bill tackles some of the more challenging recommendations of the task force not included in January legislation (S.B. 11, enacted Jan. 29, 2015): shortening the “look-back” period applied in audits, and creating a new voluntary disclosure program. 

As Mayrack and Hedstrom discussed in their February 27 perspective article on Delaware unclaimed property law (2015 TM-WSTR 3), via S.B. 11 the legislature adopted some task force recommendations by limiting the number of audits undertaken by a single outside audit firm after January 1, 2015, to 50 percent of total authorized audits and reducing the length of an outside audit firm's contract to five years.  The January legislation also provided for a two-year cooling-off period for senior state unclaimed property employees before they can work for an outside audit firm.

The task force had also recommended that the administrative appeals process provide a "central role" for an independent reviewer and that the Secretary of Finance not have the final word.  In response, S.B. 11 made the decisions of an independent reviewer binding on the secretary unless properly appealed to the Delaware Court of Chancery.

One task force recommendation not addressed by S.B. 11 was to shorten the "look-back" period applied in audits.  Currently, Delaware law allows estimation in some cases going back to 1981.  If enacted, S.B. 141 would gradually shorten the look-back period to 22 years.

Effective from the date of enactment, S.B. 141 would prohibit the state from seeking payment of any amounts owed prior to January 1, 1986.  In addition, the bill provides that, effective from the date of enactment through December 31, 2016, the state may not initiate any new examination of records or seek payment of any amounts owed as a result of an examination related to any transaction prior to January 1, 1991.  Beginning January 1, 2017, the state would be precluded from opening a new examination of records or seeking payment for unclaimed property related to any transaction more than 22 years before the calendar year in which the state notifies a holder in writing of the examination.

The task force also encouraged the Delaware legislature to create a new voluntary disclosure agreement (VDA) program and ensure that look-back periods applied in current VDA and audit programs provide appropriate incentives for compliance by holders of unclaimed property.  S.B. 141 would authorize the Secretary of State to request that any potential holder of unclaimed property enter into a VDA to determine whether the person is in compliance with Delaware unclaimed property law.  Under the terms of the proposed legislation, a holder that provides notice of its intent to enter into a VDA must complete a review of its books and records and file reports of abandoned property, but generally not with respect to transaction years before 1996.

S.B. 141 also would require a holder who enters into a VDA to make payment in full or enter into a payment plan within a specified period of time, depending on when the holder's VDA is accepted by the Secretary of State.  For a holder whose VDA was accepted on or before September 30, 2014, the holder would be required to make full payment (or enter into a payment plan) by June 30, 2016.  If a holder's VDA is accepted after September 30, 2014, and on or before December 31, 2016, payment (or entry into a payment plan) would be due within two years from the acceptance date.

Similarly, the bill would require a holder whose VDA is accepted on or after January 1, 2017, to make full payment (or enter into a payment plan) within two years from the acceptance date, but that holder may limit its review of books and records to transaction years beginning no more than 19 years before the year in which the VDA is accepted.

In other provisions, S.B. 141 would:

  • preclude the State Escheator, effective July 1, 2015, from initiating a new unclaimed property examination unless the holder receives written notice that it may enter into a VDA, or the holder fails to comply with VDA requirements;
  • reinstate the assessment of interest at 0.5 percent per month (not to exceed 25 percent) on unpaid unclaimed property amounts reported and remitted on or after March 1, 2016, unless failure to pay is due to reasonable cause and not willful neglect; and
  • require the State Escheator to send, no later than 120 days before March 1, a notice to holders that have filed reports in the past five years, stating that they may have an obligation to file a report.

Despite these significant changes, neither S.B. 11 nor S.B. 141 takes up a task force recommendation to clarify the fraud exception to the state's six-year statute of limitations.  Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: what other amendments to Delaware's unclaimed property program should the legislature consider? 

Additional discussion of state unclaimed property laws can be found in 1600-3rd T.M., Unclaimed Property.

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