The Invitation
Has your company missed its opportunity to avoid an impending Delaware unclaimed property audit?
Your company may have recently received, or may soon receive, a letter from the Delaware Secretary of State (“SOS”), inviting the company to participate in the unclaimed property voluntary disclosure agreement (“VDA”) program. The SOS recently updated its website to show the mailing date for Round Two of its 2024 invitation letters to be November 15th. For those who receive this letter but do not enroll in the VDA program, this letter will likely be followed by another, more sinister letter: informing you that you’ve become the subject of an unclaimed property audit by Delaware’s Department of Finance. Delaware sends these invitations to companies flagged as being noncompliant with Delaware’s reporting requirements regarding unclaimed property. Just being incorporated in Delaware (which is very common) is sufficient to subject a company to Delaware’s unclaimed property reporting requirements.
Unfortunately, these letters are generally sent to an officer of the company, such as the chief financial officer, who may overlook it due to time constraints and lack of knowledge. But the letters generally provide that if a company doesn’t respond or enter the VDA program within 90 days of the letter’s date, then the company will be referred for audit. Therefore, procedures should be in place to ensure this letter does not get overlooked.
Even if you received a previous invitation letter, you may still be able to take advantage of the VDA program, so long as you have not yet been contacted for audit by the Department of Finance. Either way, if you’ve received an invitation, you’ve already been flagged, so taking action now can add value to your company.
Advantages of the VDA
Entering the VDA program has substantial benefits over completing a full-blown audit. First, the VDA program waives the substantial amounts of interest and penalty that are applied as part of an audit. Second, the VDA program allows for companies to take more control of the scope and timing of the review. Under audit (which is likely to be performed by a 3rd party firm hired by Delaware), the auditor controls the scope and timing. Companies want to control the scope and timing because the number of years at issue (audit may cover 15 years) can be daunting. What’s more, if data isn’t available for the full period, the sampling procedure used during the audit could significantly increase your company’s liability.
Conclusion
Delaware unclaimed property is a complex area that contains the risk of burdensome and potentially costly audits for many companies. If your company receives mail from Delaware, it should be reviewed to see if it is an invitation to participate in the VDA process. If it is such an invitation, most companies will want to accept rather than face the alternative of an audit with a lengthy lookback period. Moreover, companies with the likelihood of unclaimed property on hand should make the effort to file regular unclaimed property reports with Delaware to keep ahead of the need for a VDA or the risk of an audit.
While Delaware is the most aggressive state relating to unclaimed property, companies should examine their unclaimed property in all the states in which they do business to ensure that unclaimed property is properly reported in each state.
ZHF is here to help
ZHF professionals have worked with companies that have ignored or overlooked VDA invitation letters from Delaware and were then contacted for audit. We were able to work with Delaware to limit the entities subject to audit and get other related entities into the VDA program. This provided all the benefits discussed above for the companies that became part of the VDA program.
If you would like to discuss any unclaimed property issues, please contact John Trippier, Rita Williams or any of our ZHF professionals.