Every state requires businesses and other holders of certain property which remains unclaimed or abandoned after a statutory dormancy period (“Unclaimed Property”) to pay over or “escheat” such property to the state. Under priority rules established by the U.S. Supreme Court, the state of the property owner’s last known address holds the initial claim on the property and the state of the property holder’s legal domicile holds the secondary claim. As states have increasingly looked to Unclaimed Property as a source of revenue, holders have experienced reduced dormancy periods and increased audits, usually by aggressive third-party contingent fee auditors. States are also seeking greater compliance by offering holders who have not been audited the opportunity to come forward through voluntary disclosure agreements (“VDA”) that limit the look-back period, waive some or all penalties, and in some cases waive or reduce the amount of interest.
Stevens & Lee assists in identifying both formal “amnesty” programs and informal voluntary disclosure opportunities prior to being audited. We guide clients through a multi-phased approach, from confidential outreach to negotiation of a VDA and implementation.
In addition, we review and analyze issues in determining the adequacy of reserves for financial statement and transactional-related due diligence purposes. Based on past and current operations and records, we determine whether certain assets are unclaimed property based on applicable state law and federal preemptions, identify the states which are entitled to the property and advise on potential liability exposure and ways to mitigate the exposure.
Stevens & Lee also identifies and assists in implementing processes to minimize the incidence of escheatable Unclaimed Property under the laws of the states which have priority and secondary claims. This may include the establishment of dormant account fees, entity restructuring and default owner provisions.
Our highly experienced team is uniquely positioned to help holders minimize their risks. The team is led by our State Tax Chair, an attorney and CPA. We have an in-depth understanding of the Delaware Unclaimed Property law and are also experienced with Unclaimed Property Acts enacted in other states.