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12/15/20 8:17 AM

Dec. 2020 Delaware Mails Unclaimed Property Audit Notices

by Clive Cohen and Heather Gabell

delawareMarketSphere Unclaimed Property Specialists has learned that the state of Delaware’s Department of Finance recently mailed unclaimed property audit notices to US corporations incorporated in Delaware. The audit notices target those holders who did not enroll in the Delaware Secretary of State’s Voluntary Disclosure Agreement (VDA) Program within the 60 days of receiving an invitation letter to participate. The invitation letters put the holder on notice that the state believes the holder to be out of compliance with Delaware’s unclaimed property law and invites them to participate in the VDA Program to bring them into compliance. If the holder does not enroll in the VDA Program within 60 days, they are referred for audit.

Corporations both large and small, public, or private can receive a VDA invitation. Under Delaware law, the state cannot initiate a new unclaimed property examination (audit) without first notifying the company that it may enter into the VDA Program (12 De. C. Ch. 11, section §1172). The invitations put the company on notice that if the holder does not enroll in the VDA program within 60 days of the date of the letter, the company will be referred for audit. The Secretary of State mailed approximately 200 invitations in August. Companies who did not enroll in the VDA Program within the 60-day period, may already have, or will soon receive audit notices from the Department of Finance.The VDA Program Versus the Delaware Audit

There are benefits to participating in the VDA Program, such as a shorter duration versus an audit, with an average VDA taking about 2 years to complete. The holder performs a self-review of their books and records, and holders who complete the VDA obtain a release of liability for the entities and property types included in the VDA, and penalties and interest are waived.

Delaware audits by contrast, are typically run by third-party auditors, who typically contract with other states, which may expose the holder to a multi-state audit. Audits generally take significantly longer to complete and can result in significant penalties and interest.

Both VDAs and audits in Delaware have a 10-year look-back period. When adding dormancy periods (3-5 years for most property types), the look-back can be up to 15 years. Further, if the holder does not keep “complete and researchable” records, Delaware can use estimation and extrapolation to calculate the holder’s unclaimed property liability for those periods where records do not exist or are not deemed to be researchable.

Check Your Mail and Reach Out

In these unprecedented times, with many of us working from home and where mail may not be checked or received daily, we recommend that holders who are incorporated in Delaware, or who have significant operations in Delaware, ensure that a designated member of your company, or your registered agent in Delaware, continuously checks the mail for an invitation letter or audit notice from the state.

While invitation letters and audit notices are typically addressed to senior corporate executives or your registered agent in Delaware, they may be easily misplaced or overlooked. Regularly checking the mail is most importantly for invitation letters, as you want to be sure that if you receive one, that you can meet that 60-day deadline.

Unclaimed property compliance is time-consuming and complex. If you receive either an invitation or an audit notice letter from the state of Delaware, consider contacting an unclaimed property adviser, who has both the knowledge and experience to guide holders in understanding their options and determining the best course of action.

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

Topics: Delaware, Audit, Voluntary Disclosure Agreements