Significant Changes in Delaware Unclaimed Property Administration Proposed

June 18, 2015

Publication| Tax

On Tuesday, June 16, 2015, Delaware Senate Bill 141 was introduced to the Delaware General Assembly proposing many significant changes to the existing Delaware unclaimed property audit and administration regime.  Written with input from Delaware government officials as well as representatives of the holder community, including attorneys from Richards, Layton & Finger, the proposed legislation would provide significant benefits to the holder community.  In general, a company may be subject to a Delaware unclaimed property audit if it is formed under Delaware law or if it conducts any trade or business activities in the State of Delaware.  In the absence of any filed annual unclaimed property reports that may have triggered an applicable statute of limitations, Delaware has historically audited companies with respect to unclaimed property liability all the way back to transactions occurring as early as 1981 (the “look-back period”).  The key components of the proposed legislation are as follows:

  • Immediate Reduction of the Audit Look-Back Period for Existing Audits:  Effective upon enactment and applicable to all existing and pending audits, the statutory look-back period would extend only to transactions in 1986 and after.  Previously, Delaware had audited companies back to transactions occurring in 1981.  Delaware had temporarily limited the look-back period commencement date to 1986 by regulation.  The regulation was set to expire on June 30, 2015.  The proposed legislation would make that temporary look-back period reduction to 1986 permanent.  
  • Reduction of the Audit Look-Back Period for New Audits Commenced After Enactment:  With respect to audits commenced after enactment but before December 31, 2016, the beginning of the possible look-back period would be moved from 1981 to 1991.  As most property is subject to a five-year period of dormancy under Delaware law, the first likely year of liability for holders would be 1996 under the proposed legislation (rather than 1986).  For audits commenced on or after January 1, 2017, the proposed legislation would provide for a rolling 22-year look-back period of review (thus a 17-year period of potential liability).
  • Future Audit Procedural Limitation:  Effective upon enactment, the proposed legislation would provide that Delaware will not initiate an audit of a holder until such holder has first been invited to participate in an Unclaimed Property Voluntary Disclosure Program.
  • Delaware Secretary of State Unclaimed Property Voluntary Program Continued:  The previously enacted Delaware Secretary of State Unclaimed Property Voluntary Disclosure Program had been scheduled to sunset on June 30, 2016.  The proposed legislation would make that program permanent.
  • Reinstitution of Interest on Late Remitted Unclaimed Property:  The Delaware code had previously provided for underpayment interest at the rate of 0.5% per month (capped at 50%) on late remitted unclaimed property.  In 2014 the provision was deleted.  The proposed legislation would reinstitute underpayment interest at the rate of 0.5% per month, but capped at 25% of the underlying liability rather than 50%.
  • Adminstrative Changes:  To increase future annual compliance, the proposed legislation provides that the Delaware Department of Finance must require the designation of a contact person by the holder on a filed annual report and that the Department of Finance must send a notice to such contact person in advance of the annual filing deadline if that holder is a regular Delaware filer.

Please note that the proposed legislation has only been introduced and has NOT yet passed.  The legislation would represent a significant benefit to Delaware corporations and companies conducting trade or business activities in the State of Delaware.

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