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9/14/22 2:22 PM

CA AB 2280, Containing Voluntary Compliance Program, Signed by Governor

by Nathan Byrd and Heather Gabell

update californiaCalifornia AB 2280 was signed by Governor Gavin Newsom on September 13, 2022 and becomes effective on January 1, 2023.

Holders have been closely following CA AB 2280, as it authorizes the Controller to establish a voluntary compliance program (“VCP”), which would allow holders to voluntarily report and remit past due property. Holders that are eligible for the program and successfully complete the requirements outlined in the bill would receive a waiver of the mandatory 12% interest assessed on late property reported to California.

VCP - Holder Eligibility

 Holders would not be eligible for enrollment in the VCP if any of the following apply:

• The holder is under audit or has received notice of an audit at the time of the enrollment request.

• At the time of the enrollment request, the holder is the subject of a civil or criminal prosecution involving compliance with California’s unclaimed property law.

• The holder was notified of an interest assessment by the Controller within the past 5 years, and such interest assessment remains unpaid at the time of the enrollment request. Holders would be eligible to file or re-file a request to enroll in the program once the outstanding interest assessment is resolved.

• The holder has had interest waived by the Controller within the past 5 years via participation in the VCP, though holders would be eligible to request enrollment in order to resolve any past due property due and owing as a result of a merger or acquisition during that period.

VCP Requirements

A key feature of the VCP is the waiver of the 12% interest. To receive the waiver, holders must complete all of the following:

Participate in an unclaimed property educational training program, to be established by the Controller, within 3 months of enrollment.

• Review of the books and records for at least the past 10 years.

• Make reasonable efforts to perform due diligence at least 30 days prior to submitting the unclaimed property report.

• File an initial report within 6 months of the date of enrollment (though the Controller may provide an extension of up to 18 months).

• Submit a final report and pay or deliver the property between 7 months and 7 months and 15 days after the Controller’s receipt of the initial report.

 Should the holder fail to meet any of these requirements, the Controller may reinstate the 12% interest. Holders should also note that there is no waiver of audit for the periods and property types covered under the VCP.

Other Key Changes in CA AB 2280

• Interest is capped at $10,000 for reports delivered on time, but that are not in "substantial compliance" with California's unclaimed property law.

• CA AB 2280 bill also amends the fee locator provisions such that fee agreements are invalid if they are made between the time the report is filed and the property is paid or delivered to the Controller, or if the agreement requires an owner to pay the fee before the claim is approved by the Controller and payment to the owner is made. Agreements must also disclose the nature and value of the property, that the Controller is in possession of the property, and provide the address where the owner can claim the property directly from the Controller/

• Finally, noting the need to protect personal information and to protect against fraud and identify theft, the bill also exempts from disclosure personal and financial information submitted by claimants and holders under audit under the Public Records Act.

VCP and Holder Compliance 

As we discussed in a previous blog post, CA AB 466 (effective January 1, 2022), authorizes the Franchise Tax Board (FTB) to share information related to companies’ unclaimed property filing history with the Controller’s Office, and added the following questions related to unclaimed property to FTB business tax forms:

• Has the entity previously filed an unclaimed property report with the Controller’s Office?

• If so, what was the date of the most recent report?

• What was the amount last remitted?

Further, the Controller’s Office, now equipped with this additional information regarding holder compliance, could step up their outreach efforts and invite businesses to enroll in the VCP.

In summary, if the Controller moves forward to establish the VCP program, knowing it will take time to be fully operational (the Controller will need to create the enrollment request form, the educational training program, and adopt rules around the administration of the program), holders will no doubt welcome the news and applaud the efforts of the Controller to allow holders to come into compliance without the threat of interest and penalties.

Should you have any questions on this or any other unclaimed property matter, contact the specialists at MarketSphere for expert guidance and support.

*Content contained in this article is considered accurate as of the publish date.

 

Topics: Compliance, California, Audit, Voluntary Disclosure Agreements