Companies incorporated in Delaware have until June 30 to enter into Delaware’s recent Voluntary Disclosure Agreement (VDA) program and become compliant with their unclaimed property reporting obligations. Under Delaware law, holders of unclaimed property are subject to audit for all open periods: over 30 years! However, holders that enroll in the Secretary of State’s VDA program by June 30 will be subject to a “limited” lookback period that goes back to 1996 and will be relieved of interest and penalties. By contrast, companies that are audited by the Department of Finance are subject to liability, including interest and penalties, for years dating back as far as 1981. Companies incorporated in Delaware ought to consider the VDA program regardless of where they do business. Moreover, Delaware escheat law is so broad that it potentially covers companies that are incorporated anywhere in the U.S. if the owners of the unclaimed property have certain connections with Delaware.

In addition to eliminating 15 years of potential liability, another benefit of the VDA program is avoiding a long, intrusive, and expensive audit by one of the state’s “bounty hunter” contract auditors. Settlement under the VDA program is expected to take nine months while a “traditional” audit could last 2 years or longer.

Although holders may still enter the VDA program after June 30, 2013 (enrollment by June 30, 2014 results in a lookback period that goes back to 1993), we suggest companies consider taking advantage of this program immediately to reduce the risk of receiving an audit notice and becoming ineligible. Crowell & Moring has deep experience representing clients in multi-million dollar audits in many states, including Delaware. For more information about entering Delaware’s VDA program, or for help with a pending audit, contact one of the authors of this alert.

This post was co-authored by Crowell & Moring attorneys Walter Nagel and Jeremy Abrams.

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