Delaware targets companies: VDA invitations and verified report requests

If your corporate structure includes entities incorporated in Delaware you may have already received, or may soon receive, either an invitation to participate in Delaware’s Voluntary Disclosure Agreement (VDA) program administered by the Delaware Secretary of State (SOS)’s office or a notice requesting a verified report from Delaware’s Department of Finance (DOF).

Delaware VDA invitations

One of the ways Delaware encourages compliance with its unclaimed property reporting requirements is to send invitations to participate in Delaware’s VDA program to companies it believes may not be in full compliance with the state’s reporting requirements. Typically, these invitations are sent out several times a year by the SOS.

Before Delaware can initiate an unclaimed property audit of a company, the SOS must first invite the company to participate in Delaware’s VDA program. Once a company receives an invitation, there is a 90-day window to accept the invitation. The SOS will then engage a third-party firm to administer the VDA on Delaware’s behalf. Companies must work through the third-party firm, with state oversight, throughout the VDA process.

Companies should be on the lookout for a VDA invitation as any company that does not accept the invitation within the 90-day window, or chooses not to participate in the VDA program, will be subject to an unclaimed property audit administered by the DOF and its third-party audit representatives who typically work on a contingency fee basis.

The benefits to a company electing to participate in the VDA program include, but are not necessarily limited to, shortened look-back periods, greater ability/flexibility to determine the scope of the review and the waiver of penalties and interest on past-due liabilities.

Delaware verified report requests

The DOF, Office of Unclaimed Property (OUP) has also reached out to holders by sending notices requesting “verified reports” of unclaimed property pursuant to 12 Del. C. section 1170(a).

Companies that receive outreach from the OUP must respond within 30 days of the letter date and acknowledge receipt of the communication and their intent to complete the verified report process. Within 180 days of the notice date, holders are required to provide the following:

• A verified report for the most recent filing year
• A list of the legal entities included in the scope of the report
• A description and copy (if available) of the companies unclaimed property compliance policies and procedures

Unlike an audit, the verified report process focuses on the single-year review of a company’s most recent annual filing. In addition, even companies that did not file a report may receive a notice – including holding companies and other companies without operational activity. There are no specific criteria set forth in Delaware that would qualify a company for receiving a notice or not.

The notices may indicate that third-party firm may assist with the verified report process, and also provide that a company failing to respond to the notice may be referred to the SOS’s Voluntary Disclosure Program or may be subject to “other enforcement actions,” which at the discretion of Delaware, may include a more in-depth compliance review (effectively a single year unclaimed property audit) or a full unclaimed property examination initiated by the DOF.

Whether a company receives a VDA invitation or notice requesting a verified report, it is critical for the company not to ignore either communication to avoid the unpleasantness of an audit.

Regardless of which notice your company may have received, you may reach out to a Baker Tilly unclaimed property specialist for guidance and assistance.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.