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By Scott Regan, Unclaimed Property | August 10, 2020

The Altus Group Unclaimed Property team has learned that the Delaware Department of Finance, Office of Unclaimed Property, mailed a series of audit notices to US corporations on July 22, 2020.

As we noted in February the Delaware Secretary of State (DE SOS) began its 2020 enforcement campaign by mailing over 100 “invitations” to companies incorporated in that state on February 20th, 2020.  Recipients, by statute, must reply to a DE SOS unclaimed property VDA invitation within sixty days or they will be referred to the Delaware Department of Finance (DE DOF) to be notified of unclaimed property audit.

Due to the COVID-19 crisis, the DE SOS previously twice extended the deadline for replying to May 22nd, 2020 and again to July 18th, 2020.

As nearly all companies are incorporated in Delaware, most US corporations are a target whether they have a history of compliance or not.  Both the VDA and audit programs apply aggressive extrapolation techniques to extract large and previously unreserved unclaimed property liabilities from Delaware incorporated companies that cannot produce 15 years of researchable records.  However, as we discussed in May, the VDA program is vastly more favorable to companies.

Unfortunately, corporations frequently overlook invitations to the VDA program and subsequently fall into the audit program.  The impacts of the crisis have made it even more likely that companies would fail to reply.

As we discussed earlier this month, the COVID-19 crisis has caused devastating revenue declines for state governments that we expect them to mitigate, in part, with increased unclaimed property enforcement and collections. This includes audits of companies that historically have not been the focus of unclaimed property audits, such as commercial real estate companies. The DE SOS mailed approximately 600 invitations in 2019 and we expect them to begin mailing new invitations shortly.

Delaware unclaimed property audits are the most invasive examinations companies can endure and, if not managed properly, often lead to vast unreserved liabilities that have a material P&L impact.

It is Delaware’s use of third-party contingent auditors and it’s use of extrapolation methodologies that attempt to corral unclaimed property due to other states into a potential 15 year stratification that has caused at least five major US corporations to sue Delaware in Federal Court over the audit program.

Suffice to say, attempting to navigate a Delaware unclaimed property audit without an experienced advocate is fraught with danger and could last five or more years.

Any company who receives a VDA invitation from the DE SOS or an audit letter from the DE DOF is encouraged to contact us for a commentary consultation.   Even if a letter has not yet been received, best practices suggest that Delaware incorporated companies take proactive measures to minimize exposure.

At Altus Group we are deeply experienced in these matters and have affected dramatically positive outcomes for our clients.  We will be pleased to talk over possible options and strategies for a response.

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