Delaware has historically maintained one of the more vigilant enforcement policies concerning reporting and remittance requirements for unclaimed and abandoned property. Unclaimed property holders have recently challenged Delaware’s unclaimed property law as ambiguous.

Delaware Senate Bill No. 13 (SB13), signed into law by Delaware Governor John Carney on Feb. 2, 2017, brings noteworthy changes to the state’s unclaimed property law. This bill is intended to provide more clarity to the reporting process, while striking a new balance of fairness between the state and unclaimed property holders. Highlights of the bill include:

1. A reduction of the look-back period utilized in voluntary disclosure agreements (VDAs) and Delaware state audits, from periods as high as 22 years down to 15 years (which include 10 report years and 5 dormancy years), together with the creation of a 10-year statute of limitations;
2. An enhancement to the state’s VDA program that will allow unclaimed property holders with open audits initiated prior to July 22, 2015 to convert their audit into a VDA by entering into the Delaware Secretary of State VDA program (Unclaimed property holders wishing to make this conversion must submit a written application to the Secretary of State within 60 days of the enactment of SB13, April 3);
3. A provision for an expedited audit review process that all unclaimed property holders with open audits (as of the effective date of this bill) can utilize, regardless of the date of audit origination.

Despite the recent Temple-Inland case, where a federal judge ruled that Delaware’s audit policies were so extreme that they “shock the conscience,” SB13 does not directly address the extrapolation abuse (statistical techniques used to identify unclaimed property when other documentation is unavailable) highlighted in that case. Nevertheless, eligible unclaimed property holders have limited time to analyze the costs and benefits of certain new options made available by SB13, and should begin with these efforts immediately.

The Temple-Inland case provides additional insight into this analysis as well. Although audits can be extremely burdensome and costly, they provide unclaimed property holders with a right to challenge and appeal audit assessments, including those involving egregious estimation methodologies.  Participation in a VDA avoids the inconvenience and time commitment involved with state auditors and typically results in the waiver of penalties and interest, but it likely eliminates an unclaimed property holder’s ability to appeal the results of any required extrapolation.  A holder must take this into consideration when evaluating the merits of a VDA.

For additional assistance with an evaluation of SB13 and its potential implications on unclaimed property reporting and remittance in Delaware, please contact us.

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