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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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Making the Case for a California VDA Program

Posted By Administration, Thursday, May 2, 2019

In March, California’s Legislative Analyst’s Office issued the report, Increasing Compliance with Unclaimed Property Laws, in which it recommends the state legislature consider providing one-time amnesty for holders seeking to come into compliance voluntarily. UPPO supports and has been working to encourage implementation of a voluntary disclosure agreement program in California.

 

The LAO report provides a compelling case for offering a VDA program, focusing on two areas:

  • Holder compliance with the state’s unclaimed property law is extremely low.
  • Increasing holder compliance solely by increasing audits is not viable. 

 

The California State Controller’s Office reported that 16,555 of the state’s estimated 900,000 businesses – approximately 2 percent – filed an unclaimed property report in 2016. According to the LAO report, the Controller’s Office cites lack of awareness and willful noncompliance as the main reasons for low compliance and speculates that high interest rates (12 percent per year) on unreported property may contribute to businesses choosing to remain noncompliant. 

 

Although revenue from unclaimed property in California has remained relatively flat for a few decades, the state significantly benefits from escheated property. 

 

“The value of property remitted to the state always exceeds the value of property reunited with owners,” according to the LAO report. “This difference provides a monetary benefit to the state… The amount that is not reunited with owners or used for unclaimed property administration provides a source of General Fund revenue.” 

 

Increased compliance with unclaimed property laws would benefit California citizens and the state itself. As more holders report, more owners would be reunited with what is rightfully theirs, and state revenue would increase because only a fraction of reported property is ever actually claimed.  

 

California’s governor has proposed increasing compliance by adding 11 positions and $1.6 million annually for unclaimed property audits and support activities. The LAO report points out that, while audits are an important deterrent, the scale of audits is too great to adequately address the lack of compliance. 

 

“With only a couple of dozen audits conducted each year, SCO cannot change the behavior of the hundreds of thousands of California businesses that are not complying with unclaimed property law,” the report says. “As such, this approach is unlikely to result in much additional compliance relative to current trends.”

 

The LAO offers two solutions:

  1. Amend the state’s tax law to require businesses to respond to a question about unclaimed property compliance as part of their annual tax filings. The question or series of questions would be purely informational, intended to increase awareness of unclaimed property responsibilities. 
  2. Provide a one-time amnesty for noncompliance holders. Such a program would waive the 12 percent per year interest penalty for holders coming into compliance. A two-year amnesty program in 2001-02 resulted in 4,927 holder reports valued at $196 million, representing about a quarter of the property escheated during those years. 

Approximately 30 U.S. jurisdictions currently offer holder VDAs. UPPO supports legislation to implement one in California. Such programs benefit citizens, holders and states alike. 

 

UPPO has supported past legislation that would establish a VDA program, has offered its assistance to help develop a mutually beneficial VDA program and recently registered as a lobbyist in the state of California to continue working on this issue. 

 

UPPO will continue to provide member updates on this issue as developments occur. Please see UPPO’s Advocacy page for additional information about the association’s advocacy work and how you can get involved. 

Tags:  california  VDA  voluntary disclosure agreements 

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The Four Phases of Delaware’s VDA Program

Posted By Administration, Thursday, April 19, 2018

As part of recent changes to Delaware’s unclaimed property statute, the state must give holders the opportunity to enter into its voluntary disclosure agreement (VDA) program before initiating audits. In addition, holders that were already under examination had the option to convert to a VDA by Dec. 11, 2017. Expectedly, interest in Delaware’s VDA process is high. 

 

To provide UPPO members with insight into Delaware’s VDA process, Delaware Unclaimed Property VDA Administrator Alison Iavarone outlined the program and responded to questions during a recent UPPO webinar. 

 

“The VDA program is not an examination—it’s not an audit—but the holder is expected to conduct a comprehensive and detailed self-review of its books and records to determine whether the holder has past-due abandoned or unclaimed property reportable to Delaware,” she said.

 

Once enrolled, qualified unclaimed property holders accepted into Delaware’s VDA program will proceed through a four-phase process.

 

Phase 1: Scoping

During the initial phase of the VDA, the participating holder analyzes its organizational history, accounting functions and records to determine areas of potential unclaimed property exposure and underreporting. 

 

“The review should be customized to the holder,” Iavarone said. “In order to determine how it’s customized, you need to understand the corporate activity, whether companies were acquired during the VDA review period and how they were rolled into the company for accounting purposes, for example. Another big thing to address during the scoping phase is the compliance history—whether they have been filing and what property types they have been filing. This could help minimize the review you need to do.”

 

The holder determines the entities and property types where unclaimed property exposure exists and submits a Scoping Worksheet and Information Request to the VDA administrator assigned by the secretary of state’s office—either Drinker Biddle or TL2Q. 

 

The administrator reviews the holder’s submission and responds to any questions the holder may have about the process. The Delaware Department of State communicates with the administrator throughout the VDA process and remains available to address holder concerns. 

 

At the conclusion of this phase, the administrator and holder will agree on the scope of the VDA and establish a timeline for completion of the other phases. 

 

Phase 2: Quantification

During the second phase, the holder will review its books and records to quantify past-due unclaimed property reportable to Delaware for the entities and property types established during the scoping phase. The methodology for the quantification of amounts due to Delaware will generally be based on whether an entity is domiciled in Delaware and the records availability for each entity and property type. 

 

The holder and administrator periodically complete status updates to ensure the process is proceeding. The holder provides preliminary quantification schedules or other documentation for the administrator’s review and feedback. 

 

Phase 3: Submission and Validation

During the third phase, the administrator reviews the holder’s work and conclusions with the goal of establishing a settlement agreement, including the amount reportable to Delaware. The holder presents its VDA Submission to the administrator. It should include:

  • Entity or company background information (in narrative form). 
  •  Summary of the work performed (in narrative form). 
  •  Summary of findings (in narrative form). 
  •  Supporting schedules. 
  •  Supporting documents. 
  •  Other applicable documentation (e.g., legal opinions, management representation letters, etc.).

“This is the nuts and bolts of the VDA,” Iavarone said. “It should include is a summary of what was done in narrative form and then quantification schedules summarizing how you came up with the numbers, along with supporting documentation.” 

 

Upon receipt and review, the administrator responds with questions and follow-up items needed to proceed. Depending on the request, the holder may respond with supporting documentation and/or edits and updates to calculation spreadsheets. The holder also provides a management representation letter from its chief financial officer, describing what records are available for property types and for which years. 

 

The administrator presents the VDA Submission to the secretary of state’s office for review and approval. The Department of State reviews the VDA Submission and the administrator’s recommendations.

 

Phase 4: Closing and Documentation

Upon acceptance of the VDA Submission, the holder and secretary of state’s office work together to close the VDA. An officer or authorized representative completes and submits Form VDA-2 – Voluntary Self-Disclosure Agreement, along with several attachments:

  • Exhibit A: List of Entities: This attachment includes a list of entities include in the VDA and their federal identification numbers. Dates and states of incorporation are also requested but not required.
  • Exhibit B.1: Summary of Amounts Due: This attachment includes a table summarizing reportable amounts by property type. 
  • Exhibit B.2: Line Item Owner: This attachment, provided in a printable format should include the name, address, property type and amount that will be included in the NAUPA file that will be uploaded by the holder after receiving the VDA Demand Letter. 
  • Exhibit C: SOS VDA Submission: This attachment may consist of many documents and should include: the narrative summarizing the VDA analysis; a summary and detailed schedules quantifying amounts; copy of VDA-1 and any applicable amendments; management representation/records availability letter; legal opinions/memoranda related to the VDA; and any other relevant documents. 

After the holder and secretary of state have signed Form VDA-2, the Department of State will issue a Demand Letter, requesting payment and providing instructions for uploading the necessary NAUPA file. The holder will have 10 days to make payment of the amount due. 

 

Following completion of the VDA process, the holder is required to file unclaimed property reports electronically to the Department of Finance for the next three years. 

 

For additional information regarding Delaware’s VDA program, including forms, sample documents and answers to frequently asked questions, visit http://vda.delaware.gov.

Tags:  Delaware  VDAs  voluntary disclosure agreements 

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California Legislature Considers Voluntary Disclosure Program

Posted By Administration, Thursday, April 5, 2018

A.B. 2773, a bill under consideration by the California Assembly, would establish a voluntary disclosure program in the state. If passed, the statute would require the state controller to create a program following several requirements similar to those in other state voluntary disclosure programs. They include:

  • The program would be open to holders out of compliance with applicable unclaimed property reporting deadlines if they are not already under audit when applying to participate.
  • Participating holders would be expected to review their records and report obligations to the state for the previous 10 years. 
  • The controller would waive interest and penalty charges for holders completing the program in good faith and coming into compliance.
  • The holder would not be subject to audit for the period covered by the voluntary disclosure agreement (VDA) unless the controller reasonably determines the holder has made a fraudulent or willful misrepresentation. 
  • Payment to the state for outstanding liabilities would occur within 12 months from the VDA filing date or another date determined by the controller. 

If adopted, the program would begin on Jan. 1, 2019, and would remain in effect until Jan. 1, 2024, unless extended by statute. 

 

On March 15, 2018, UPPO notified bill author Assemblyman Dante Acosta of its support for the bill and availability to provide expert testimony or other assistance regarding the legislation and its subsequent implementation. 

 

A.B. 2773 is scheduled for an April 10 hearing by the assembly’s judiciary committee. UPPO members can track the progress of this bill and all active unclaimed property legislation nationwide via our govWATCH service

Tags:  California  legislation  VDAs  voluntary disclosure agreements 

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New York reduces voluntary compliance program reach-back period

Posted By Administration, Thursday, February 9, 2017

Effective on Jan. 1, 2017, the state of New York implemented a reduced reach-back period for holders participating in the voluntary compliance program. The reach-back period is now 10 years plus dormancy on general ledger items, reduced from 20 years plus dormancy before the change.

 

“We’ve been talking to holders quite a bit about what works and doesn’t work,” says Kelly Kuracina, assistant bureau director for New York’s Office of Unclaimed Funds. “We heard over and over that the reach-back period was intimidating. It’s uncommon for companies to have records going back more than 20 years. We thought it would be a good-faith olive branch to set a more reasonable timeframe for when companies are likely to have records.”

 

The reduced reach-back period applies only to the voluntary compliance program—not to audits. Companies participating in the voluntary compliance program before Jan. 1, 2017, also fall under the previous reach-back period. However, if a holder joined the program near the end of 2016 and identifies issues related to the reach-back period, New York’s Voluntary Compliance Unit will review the circumstances and work with them on a case-by-case basis, according to Kuracina.

 

Holders are eligible to apply for the program if they have not been contacted about an audit in New York and would be first-time reporters or recently identified a property type that hasn’t been reported.

 

As part of its outreach efforts, New York’s Voluntary Compliance Unit has been sending letters to likely property holders, inviting participation. Whether they receive an invitation or initiate the process on their own, potential program participants can complete a self-audit checklist to help determine whether the company is holding unclaimed funds. Or, if the holder already knows it has past-due unclaimed property to report, it can complete a voluntary compliance agreement (VCA). Upon review of the survey or VCA and acceptance into the program, the holder has six months from the date of acceptance to conduct its review, complete its due diligence and file a report.

 

“We know there’s a population of companies that are either not aware or not in compliance,” Kuracina says. “We take responsibility for raising awareness and making sure they know there’s a requirement under the law to report unclaimed funds they hold. If it’s simply a case where they aren’t aware, we want them to become aware. If they weren’t in compliance because the reach-back period seemed too onerous, now they have the opportunity to come forward.”

 

Learn more about New York’s voluntary compliance program on the state’s unclaimed property website, or contact the Voluntary Compliance Unit at nysvcu@osc.state.ny.us with any questions about the program or unclaimed property compliance in the state.

 

 

Tags:  New York  unclaimed property  VDA  voluntary disclosure agreements 

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All VDA programs were not created equal

Posted By Administration, Thursday, July 14, 2016

Several states give unclaimed property holders the chance to come into compliance voluntarily, in exchange for waived fees and penalties. These Voluntary Disclosure Agreement (VDA) programs act as a symbolic olive branch from the states, encouraging holders to comply with applicable laws on their own, rather than under the potentially more daunting process of an audit.

 

Many of the various state VDA programs have similar features. They typically include stipulations that holders can’t enter into VDAs if they are already under audit or have previously gone through the VDA process, for example. However, the requirements of each VDA are different, and some of them have quirks completely unique from other states’ programs. Thus, thoroughly reading VDA documentation and guidance before signing on is essential. Failing to fully understand what a VDA requires could cause more problems than it solves. Following are some of the interesting nuances found in some state VDA programs.

 

Compliance with other laws

A major reason why states offer VDAs is to encourage compliance with unclaimed property laws. So it makes sense that most of them stipulate that the holder agrees to comply with these laws after it completes the VDA process. However, Texas reportedly takes things a step further than most by requiring companies to certify they are in compliance with all of the state’s tax laws before formalizing the VDA.

 

Additional documentation

While most VDAs simply require holders to agree to comply with applicable laws via a stipulation within the VDA application form, some require additional assurances. Both Nevada and Tennessee specify that holder must submit their written policies and procedures regarding unclaimed property compliance.

 

Required pre-audit option

Most VDA programs are designed for holders to approach the state and request approval to participate. In Delaware, however, VDA participation is now proactively offered to holders by the state before an audit can begin. This requirement became effective on July 1, 2015, when the state’s previously temporary VDA program was made permanent.

 

Look-back period

One of the advantages of entering into many of the VDAs is a substantially shorter look-back period than holders face under audit. Although the VDA look-back periods vary by state, many of them are around 10 years. Delaware, however, has a lengthy, 19-year VDA look-back period (for holders that enroll on or after Jan. 1, 2017), and New York has a pinned look-back start date of Jan. 1, 1992, for general ledger items, such as payroll, accounts payable and accounts receivable credits, and gift certificates.

 

Repeat filer eligibility

In most VDA programs, participation is limited to first-time filers, except when a holder has merged, acquired another company or become responsible for reporting a new property type. Pennsylvania, however, has a provision allowing a holder to reenter the VDA program if it has not participated in the past 10 years.

 

Others?

Have you encountered any unique or unusual VDA provisions? Share them in this article’s comment section.

 

Additional Resources

Voluntary Disclosure Agreements: Weighing the Pros and Cons

Can’t We All Just Get Along?

Tags:  unclaimed property  VDA  voluntary disclosure agreements 

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