Unclaimed Property Audit Alert: New Round of Delaware Voluntary Compliance “Invitations” Will Be Issued This Week

Client Alert

On Monday, May 20th, the Delaware Secretary of State issued a notice announcing that the State will distribute letters this week inviting companies to enter the Abandoned or Unclaimed Property Voluntary Disclosure Agreement Program (“VDA Program”).  This is a continuation of the State’s heightened enforcement initiative that we highlighted earlier this year.  We believe this round of invitations will be targeted at privately held Delaware incorporated companies with an apparent history of little or no prior reporting of unclaimed property to Delaware.

Key Provisions of the VDA

Invitees have 60 days from the date of the invitation to enroll in the VDA Program by completing, executing and submitting Form VDA-1 Disclosure and Notice of Intent to Voluntarily Comply to the Secretary of State.  Additional information on Delaware’s VDA program can be found on the State’s website.

If an invitee does not enroll in the VDA Program within 60 days of the invitation mailing, the company will be referred to the State Escheator for examination.   A few significant points to consider in the determination of whether to join the VDA Program or be subject to an audit include:

  1. interest for certain and perhaps penalties will be assessed in a Delaware audit, but all interest and penalties are waived under the VDA Program;
  2. an audit involves a third-party contract auditor often compensated under a contingent fee arrangement where their pay could be tied to the size of the State’s recovery whereas the VDA Program involves a self-review, typically with the assistance of outside counsel and/or consultants, although the state does employ third-parties to help administer the VDA Program;
  3. audits often last 3 to 6 or more years with other states joining the audit while VDAs do not involve other states and usually last 2 years or less; and
  4. the Delaware audit program is administered through the Division of Revenue while the VDA Program is administered through the more “business-friendly” Secretary of State.

What to Do if You Receive an Invitation

It is critical that a company recognize the VDA invitation letter when it receives it, so that it has the ability to make a deliberate determination regarding participation in the VDA Program.  There are a number of key factors that a company should consider in making a determination of whether to participate in the VDA Program or be subject to an audit-and the correct decision is often based on the specific facts and circumstances for a particular company.

If you have any questions regarding this Alert, the decision to enter into the VDA Program or be subject to an audit or unclaimed property generally, please contact one of the members of the Morris Nichols’ Unclaimed Property Counseling Group.

Copyright © Morris, Nichols, Arsht & Tunnell LLP. These materials have been prepared solely for informational and educational purposes, do not create an attorney-client relationship with the author(s) or Morris, Nichols, Arsht & Tunnell LLP, and should not be used as a substitute for legal counseling in specific situations. These materials reflect only the personal views of the author(s) and are not necessarily the views of Morris, Nichols, Arsht & Tunnell LLP or its clients.

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