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By Scott Regan, Unclaimed Property | February 10, 2021

Delaware will mail hundreds of unclaimed property enforcement notices on February 19th, May 14th, and August 20th

Delaware’s 2021 Unclaimed Property Voluntary Disclosure Agreement Program and Unclaimed Property Audit Program begins on February 19th, when the first round of enforcement noticed will be mailed, followed by mailings on May 14th and August 20th.

The State of Delaware received rare national attention with the beginning of the new administration in Washington. After all, as the 46th state by population and the 49th state by land area, Delaware hardly captures the imagination of most Americans.

However, in the world of unclaimed property compliance, “The First State” lives up to its official nickname, and it’s not even close. For decades, Delaware has led all states in enforced unclaimed property compliance.

What are the unclaimed property collection priority rules?

The landmark 1965 Supreme Court decision Texas v. New Jersey established a pecking order for the states to collect unclaimed property from US corporations. These “priority rules” afford first collection rights to the state of the last known address of an owner as recorded on a company’s books and records. Second priority collection rights belong to the state of incorporation of the company holding the property, if the owner’s address is foreign, or “unknown”.

“Unknown address” property has been widely accepted to include all unclaimed property that might have existed during an audit lookback period for all states, but for which detailed records no longer exist, due to systems conversions and routine record retention policies. Lack of historical/legacy records going back 10-15 years is a common issue for companies.

These priority rules thus grant exceptionally enhanced unclaimed property collection rights to states of incorporation that can use estimation techniques to make claim to a company’s unclaimed property that would be due to other states, if sufficient records existed.

Details on Delaware unclaimed property

According to the Delaware Division of Corporations, over 1 Million LLC’s are registered in that state. It is estimated that 66% of all US corporations are incorporated in Delaware. Delaware’s unclaimed property code specifically asserts that the state may calculate an estimated liability in the absence of records.

Beginning in 2017, Delaware revamped its unclaimed property collection efforts, creating the Delaware Secretary of State (DE SOS) Voluntary Disclosure Agreement Program and restructuring the Delaware Department of Finance (DE DOF) Office of Unclaimed Property Audit Program.

By law, the DE SOS is to mail “invitations” to the VDA program throughout the year.  Companies may not be audited by the DE DOF unless they first receive, and fail to respond to, an invitation.  Companies that receive such an invitation must respond within sixty days.  Those that fail to respond, will be turned over to the DE DOF to initiate an audit, every time.

VDAs and audits

In each of the last three years, the DE SOS mailed hundreds of VDA invitations to companies that are incorporated in Delaware. These notices were sent to the attention of the CEO and Delaware Registered Agent.

In 2020, invitations were mailed in February and August. And, right on schedule, all that did not respond received audit notices.

While Delaware’s VDA and audit programs are both challenging, the VDA program is vastly more favorable to US Corporations than the audit programFrequently, the audit program leads to material and unreserved out-of-compliance liabilities, as this short video on the Delaware VDA and audit programs explains.

Delaware employs numerous third-party contingent audit firms. These firms maintain contracts with most states and always shop their Delaware assignments to their clients. Thus, a Delaware unclaimed property audit becomes a multi-state unclaimed property audit, every time.

It cannot be emphasized enough how favorable the DE SOS VDA program can be for a company. Altus Group’s short interview with Delaware’s VDA Administrator describes what companies should expect from the program.

Overall, due to the COVID-19 crisis, states are ramping up their unclaimed property enforcement to close their extreme revenue and budget shortfalls. In fact, Utah, Indiana, Pennsylvania, Washington and New York have all mailed their own unclaimed property voluntary disclosure program notices in 2021.

What to do if you receive a letter

Altus Group encourages that consistent inquiries be made with the office of the CEO, the Delaware Registered Agent, and the mail room.  If a VDA or audit letter from any state has been received, please contact us to talk over your options on how best to respond.  We have a very talented and experienced team, industry leading systems and methods, and an efficient and cost-effective program.

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