On February 2, 2017, Delaware Governor John Carney signed Senate Bill 13 (SB 13), which completely rewrote the Delaware unclaimed property (UP) laws. Notable changes include due diligence requirements, new escheatable property types, and clearer statute of limitations and record retention requirements.
Delaware’s third largest revenue generator is UP receipts, and their list of escheatable property is much more expansive than many states. Delaware has blazed a trail in aggressively pursuing businesses incorporated in their state by arguing that all property not escheated to another state must be turned over to them (even when the owner’s last known address is not in Delaware). As one judge stated, Delaware’s aggressive UP practice “shocks the conscience.” After the filing of several law suits by states accusing Delaware of taking UP legally belonging to them, and an unfavorable decision in Temple-Inland v. Cook, Delaware has rewritten their UP code to bring their rules closer to the practices of most other states.
Due Diligence Requirements
Under previous law, Delaware only required holders to send due diligence letters to the owners of securities-related property considered dormant and valued over $250. Under SB 13, holders are now required to send due diligence letters to all owners of property valued over $50 (unless the property is a security, then a letter must be sent regardless of the value). The letters must be mailed 60 to 120 days before the report filing date. Additionally, the holder must give a property owner 30 days to respond to the letter.
New Escheatable Property
Delaware now requires holders to escheat the following types of property:
Stored value cards and gift cards (dormancy period five years)
Individual retirement accounts that are qualified for tax deferral under U.S. income tax laws (dormancy period three years)
Money or credits owed to a customer as a result of a retail business transaction (dormancy period five years)
Statute of Limitations and Record Retention
Under SB 13, the statute of limitations will be 10 years from the duty of a holder to file a report (dormancy), pay or deliver property to Delaware. Additionally, holders are required to maintain their records for a period of 10 years after the date a report was filed with the state. These changes bring Delaware in line with the record retention policy of the Uniform Unclaimed Property Act.
Audits and Voluntary Disclosures
SB 13 retained the option for holders to convert to a Voluntary Disclosure Agreement (VDA) if a UP audit was initiated before July 22, 2015. Qualifying holders can only take advantage of this option until July 1, 2017.
For audits that are initiated before the effective date of SB 13, holders can request an expedited completion of the audit. This request would require Delaware to complete the audit within two years of receipt of the expedited completion request and would waive all interest and penalties. The Delaware State Escheator must receive notification of this request within 60 days of the adoption of SB 13.
SB 13 added a fourth additional civil penalty for holders that enter into contract or other arrangement for the purpose of evading the unclaimed property obligation or otherwise willfully failing to perform its holder duty. The penalty is $1,000 per day, not to exceed $25,000, plus 25% of the value of the property that should have been reported.
It’s likely that this penalty was added to allow Delaware another opportunity to recoup revenue lost due to limiting their lookback to 10 years from the reporting period. For a holder that owes $100,000 or property on an UP report, a taxpayer could be assessed nearly $300,000 including penalties and interest.
If your business is organized in Delaware or conducts business in Delaware it is important that you take a close look at your current UP procedures.
For specific questions or to learn further details about the recent Delaware UP law changes, contact Hannah Prengler at email@example.com or a member of your service team.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.