State changes abandoned property guidelines in wake of settlement

349px-Seal_of_DelawareDOVER — In the wake of an abandoned-property lawsuit Delaware recently settled, Secretary of State Jeff Bullock has issued new guidelines for voluntary reviews of unclaimed property, with further changes to come.

A memo written by Mr. Bullock and sent to outside consultants and attorneys provides information on the change. The time period the states uses when looking back in a voluntary audit to estimate how much a company might owe from unclaimed stocks, bank accounts and other sources will be shortened to what is effectively 15 years in most cases. It currently is 19 years.

In the memo, Mr. Bullock laid out what the lawsuit means for the state.

“When the Delaware General Assembly returns in January, my office and the Department of Finance will propose additional common sense changes to Delaware’s unclaimed property law. This would include a further reduction in the (Voluntary Disclosure Agreement) look back period that is in accord with most states’ look back periods, as well as addressing some of the issues specifically raised by the court in the Temple-Inland opinion, namely a record retention provision for unclaimed property reports tied to the current statute of limitations, and possibly a negative reporting requirement,” he wrote.

“While some of these changes cannot be made until our legislature reconvenes in January 2017, the look back period can be addressed now, and so VDAs will from this point forward be settled based on a look back period of 10 years plus dormancy from the date a holder enrolled.”

The opinion referenced by Mr. Bullock is a June ruling from District Court Judge Gregory Sleet in the case of a lawsuit filed against the state by packaging company Temple-Inland. Delaware, Judge Sleet wrote, went back 22 years in its audit, failed to inform the company it should retain records for the audit, used a biased method of estimation and took advantage of “loopholes.”

“To put the matter gently, defendants have engaged in a game of ‘gotcha’ that shocks the conscience,” he wrote.

The two sides settled earlier this month, with the terms not disclosed to the public. Temple-Inland was seeking $1.4 million.

That lawsuit did not involve Voluntary Disclosure Agreement program.

The Voluntary Disclosure Agreement program was set up in 2012 “to respond to concerns about Delaware’s ongoing audit program, and to encourage more companies to come into compliance with their legal responsibilities as they relate to abandoned property,” Mr. Bullock wrote in the memo.

More than 400 voluntary audits have been completed.

The secretary of state’s message also seeks to differentiate the Delaware Division of Revenue’s audit program, with Mr. Bullock writing, “The actions taken by the state escheator in the Temple-Inland audit bear little, if any, resemblance to the administration of the VDA program.”

The memo indicates the state will not be changing its method of estimation, which had been criticized by Judge Sleet for using assets already escheated to another state to determine what was owed. The result, the judge wrote, was companies potentially paying for the same property twice, which federal case law protects against.

Changing the method of estimation would likely result in a large revenue decrease for Delaware, which relies heavily on abandoned property to balance its budget.

The Department of Finance could not be reached for comment.

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