California rejects unclaimed property regulations as Delaware targets companies
California rejects unclaimed property regulations
On Aug. 5, 2024, the California Office of Administrative Law (OAL) notified the State Controller’s Office (SCO) that it had denied its approval for the SCO proposed regulations governing the activities of third-party unclaimed property auditors.
As a part of its decision in Yee v. ClubCorp Holdings, Inc., on April 27, 2021, the California Superior Court for San Francisco County found that California’s regulations regarding the use of third-party auditors to conduct unclaimed property examinations were subject to the Administrative Procedures Act (APA), but had failed to meet the statutory requirements for regulations required under the APA. In response to this decision, the SCO submitted revised regulations to the OAL for review on June 21, 2024.
The OAL reviewed the regulations and, on Aug. 12, 2024, issued its decision denying its approval for the proposed regulations because it found that “(t)he proposed regulations failed to comply with the clarity and necessity standards of the APA as well as required APA procedures.” The SCO will have the opportunity to address the concerns raised by the OAL and resubmit the proposed regulations within 120 days after receiving its decision.
Until final regulations regarding the activities of third-party auditors are approved, any company receiving an unclaimed property audit notice from California using a third-party auditor, or that is currently undergoing one, may wish to reach out to an unclaimed property professional or counsel to determine how to proceed.
Delaware targets companies regarding compliance
The Delaware Department of Finance, Office of Unclaimed Property (OUP) has recently begun to send out 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 notarized verified report for the most recent filing years
- A list of the legal entities
- 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. There are no specific criteria outlined in the unclaimed property law that would qualify a company for receiving a notice.
The notices may indicate that a third-party firm may assist with the verified report process. Additionally, they may state that a company failing to respond to the notice may be referred to the Secretary of State’s Voluntary Disclosure Program or may be subject to other enforcement actions, which can include a more in-depth compliance review (basically a single year unclaimed property audit), or a full unclaimed property examination.
Companies who have received a Delaware verified report notices, or with questions regarding the impact of the California third-party auditor regulations, can reach out to a Baker Tilly unclaimed property specialist.
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.
