Delaware is anticipated to send out additional unclaimed property notices this month to companies that may not be in compliance with the state’s abandoned and unclaimed property laws.
In the past, Delaware has targeted the large Fortune 500 companies for both its audits and voluntary disclosure program. As many of these companies have completed audits and voluntary disclosure programs, the new targets have been progressively smaller companies.
This round of unclaimed property notices will likely hit companies with annual revenues as low as $100 million.
That means that smaller and mid-market companies will have to learn about unclaimed property.
And how to navigate the pitfalls of a multi-state audit with a contingent fee auditor.
Who Is At Risk of Getting a Delaware Notice
Delaware has over a million entities incorporated or registered in the state. However, it is the state’s belief that only a small portion of companies are in compliance with the unclaimed property laws.
And that’s not including companies that are not organized within the state. Just because your company is not incorporated in Delaware does not mean you will not be a target. But incorporation within the state does raise your risk profile.
Other companies that may be at risk include companies in a large organizational structure that may have sister companies that are incorporated in Delaware, companies that may have reported unclaimed property in the past and have ceased reporting, and companies with a large operational presence in the state.
What To Do If You Receive a Delaware Unclaimed Property Notice
First and foremost, do not ignore the letter from Delaware!
The first letter that you receive from Delaware should be a letter from the Delaware Secretary of State offering your company a chance to participate in the state’s voluntary disclosure program and complete a voluntary disclosure agreement (“VDA”).
However, if you ignore the attempts from the Secretary of State to get you into the voluntary disclosure program, you can expect a letter from the state’s chief escheator, Brenda Mayrack, informing your company that it is now under audit from the state!
You have only 60 days from the first VDA letter to when you may get an audit letter!
Why A VDA May Be Preferable to an Audit
Delaware has two main approaches to bringing companies into compliance: the VDA (carrot) and the audit (stick).
The VDA process has three main benefits for companies (holders):
- State waives penalties and interest for holders for any past due property
- State waives its examination rights after completion of the VDA and three successful years of compliance
- VDA is self-guided, allowing the holder to work around its primary business concerns and scheduling requirements, not an outside auditor
Timing on the VDA
As with everything, timing is critical if you want to enter into the Delaware VDA program. Only companies that have not been notified that they are under audit are eligible for the VDA program.
Thus, it’s important that companies act before they get an audit notice if they intend to take advantage of the Delaware VDA program.
Remember, that can be in as few as 60 days from the VDA letter! If you received your VDA letter in February 2019, then that time has expired and you may be finding an audit letter in your mailbox soon.
Even if you missed this deadline, you should proactively take action to minimize the effects of a potential audit, in Delaware and other states.
Furthermore, if you believe that your company is not in and needs to get into compliance, you do not have to wait for a letter from Delaware. You can begin a comprehensive 50 state unclaimed property compliance program now. Including entering the Delaware VDA program.
Many companies have tax and accounting professionals complete the bulk of the heavy lifting within the VDA program. Spring and summer are often more convenient times as the workloads are less, outside of income tax preparation, internal audit, and year-end close.
Contact Kimberly DeCarrera to discuss how to begin your unclaimed property compliance program.