Thursday, October 12, 2017

Delaware Adopts New Unclaimed Property Audit Regulations, Starting 60 Day Audit Conversion Clock for Some Holders

On October 1, 2017, the Delaware Department of Finance issued long-awaited unclaimed property regulations, effective October 11.   The new regulations continue the overhaul of the State's unclaimed property program and provide numerous and detailed instructions to both holders and auditors relating to unclaimed property audits.  The regulations specify, among other things, the State's process for initiating and audit, the process of information requests and inquiries by the auditors, and specific guidelines on the use of estimation.  The guidelines also address a number of substantive issues of interest in the normal reporting process, such as:
  • a specification of records to be maintained by the holder in the ordinary course of business;
  • details on calculating the "maximum cost to the issuer" associated with gift-card or stored value instrument that must be escheated to the state;
  • specifications concerning what activities do, or do not, constitute "owner activity" sufficient to void the presumption that property has become abandoned;
  • what information is sufficient to establish the state of the owner's last-known address; and
  • standards for requesting an extension of the annual reporting deadline.
In coming posts, we will review the details of some of the new regulations.  In the meantime, however, holders should be aware that the promulgation of these new regulations starts a 60 day period during which certain companies under audit by the State of Delaware will have the option of converting the audit to a Voluntary Disclosure Agreement with the Secretary of State.
Pursuant to legislation adopted earlier this year, for audits commenced on or before July 22, 2015, (except for securities examinations in which estimation is not required) the holder "may notify the State Escheator and the Secretary of State of the person's intent to convert the pending examination into a review under the Secretary of State's voluntary disclosure program."  Holders are required to make that election "within 60 days of the adoption of regulations under § 1176(b) of this title."  Thus, the new regulations kick-off that election period.  Holders that are currently under audit by Delaware should take this opportunity to assess whether the VDA program is more favorable.
Notice of the conversion period, as well as forms for implementing the conversion process, can be found at the Secretary of State's VDA website.

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