Incorporated in Delaware? notices requesting “verified reports” of unclaimed property maybe coming

Did you incorporate your business in the state of Delaware? Unclaimed wages, vendor payments, and receivable credit balances gather dust in countless companies, including those operating in Delaware. These “lost and founds” are governed by dynamic state programs, especially in Delaware’s bustling corporate landscape. Stay ahead of the curve and learn how to recover your forgotten finances. It seems that unclaimed property audits and legislation are on the rise due to state budget shortfalls,    

Key Takeaways 

• As the landscape of unclaimed property continues to evolve, Delaware remains among the top states for escheatment reporting and compliance.
• Companies must acknowledge receipt within 30 days and provide the requested information within 180 days. 
• This process aims to flag companies likely to have unaddressed compliance issues, potentially warranting closer scrutiny through the VDA program or an examination.  
• To avoid escalating the situation, prompt action is vital. Companies should acknowledge receipt within 30 days and initiate internal inquiries to ensure an appropriate response.

Examples of Abandoned or Unclaimed Property 

Abandoned or unclaimed property subject to being reported and remitted to Delaware pursuant to the Abandoned or Unclaimed Property Law includes tangible property described in 12 Del. C. § 1134 or a fixed and certain interest in intangible property held, issued, or owed in the course of a Holder’s business or by a government, governmental subdivision, agency, or instrumentality. The term includes, but is not limited to, the following:

1. Money, interest, dividend, a check, draft, or deposit.
2. A credit balance, customer’s overpayment, gift card, stored-value card, security deposit, refund, credit memorandum, unpaid wage, unused ticket for which the issuer has an obligation to provide a refund, pari-mutuel ticket, mineral proceeds, or unidentified remittance.
3. A security, bond, debenture, note, or other evidence of indebtedness.
4. Money deposited to redeem a security, make a distribution, or pay a dividend.
5. An amount due and payable under the terms of an annuity contract or insurance policy.
6. An amount distributable from a trust or custodial fund established under a plan to provide health, welfare, pension, vacation, severance, retirement, death, stock purchase, profit-sharing, employee-savings, supplemental-unemployment insurance, or similar benefits.

Delaware’s Verified Report Request and Compliance Review Process

KPMG recently reported that the state of Delaware recently sent out numerous notices requesting “verified reports” of unclaimed property under 12 Del. C. § 1170(a). This provision was first introduced in Delaware’s unclaimed property statute under a set of reforms enacted in 2017 (SB 13).  In November 2023, Delaware issued a wide-scale wave of verified report inquiries, seemingly intensifying the exploitation of this compliance enforcement tactic.   

Effective June 30, 2022, Delaware amended the state’s unclaimed property statute to allow the Department Of Finance to subject unclaimed property holders to an audit when they fail to complete a compliance review. The DOF can require a holder to file a “verified report” of unclaimed property and submit to a “compliance review,” a mini-audit that may involve voluminous information requests.     

According to the frequently asked questions (FAQs) released with the notices, the verified report process involves reviewing holders’ compliance over the past year based on their most recent annual filing or lack thereof. Companies that fail to file a report may receive a notice since no criteria qualify who the state targets. The notifications state that recipients must respond by providing:

Reporting requirements

The notices require holders to submit:  

1. A notarized verified report for the 2022 report year signed by a company’s corporate officer that the reports and enclosures are true, correct, and complete. 
2. A list of legal entities that were included in the 2022 report.
3. A statement regarding whether the company has written unclaimed property compliance policies and procedures (P&Ps) in place and, if yes, a copy of the P&Ps.    

Companies receiving a verified report notice must respond within 30 days. This response should acknowledge receipt of the notice and confirm the timeline for submitting the requested information. 

To ensure completion within the one-year deadline for verified reports, the state requires information to be provided no later than 180 days after the notification date. This timeframe allows for internal review, potentially by a third-party (similar to those conducting unclaimed property examinations) involved in the verification process. 

What to Do

The accounting firm BDO has a few tips given the above, a company that receives a notice should:

1. Determine if it has received prior Delaware correspondence;
2. Determine compliance history with the state of Delaware;
3. Determine record retention policy for banking records, accounts receivable records, general ledgers, etc.;
4. Determine if there are policies and procedures for unclaimed property (current and historical) and confirm they are being reviewed and updated annually;
5. Evaluate the VDA decision tree; and
6. Take any necessary action immediately.

Conclusion 

Delaware uses a range of mechanisms to enforce its unclaimed property laws, and has historically been very assertive in seeking to collect unclaimed funds from businesses incorporated in Delaware.