Thursday, June 13, 2013

Unclaimed Property System in Delaware

The system for reuniting unclaimed property with its rightful owner is generally very beneficial in most states; however, it has recently been discovered that the State of Delaware has been utilizing the system to collect large penalties and interest from business entities in the state. As a result, it has become the third largest revenue generator for the state of Delaware. 

Most states ask business entities to notify them of cash, accounts, or other property they have in their possession which has not been claimed by the owner after a period of some years. In California, unclaimed or undelivered property must be reported after three years, while Delaware businesses have five years. Participation is mandatory for any business holding unclaimed property and reporting must be initiated by the business. There is no reminder of upcoming deadlines provided by the state.  Information regarding the necessary forms for Delaware can be found at the following URL:  http://revenue.delaware.gov/unclaimedproperty.shtml

An Op-Ed piece published in Forbes earlier this month asserts that in 2012 Delaware returned $18.9 million in unclaimed property to the rightful owners, while collecting $319.5 million for the state’s coffers by liquidating property. Furthermore, the piece goes on to explain that the state estimates that in 2013 the General Fund revenue from unclaimed property will be more than $500 million. 

The primary concern put forth by the piece in Forbes is the extreme auditing practiced in the state to identify and penalize those businesses that have not notified the state of the unclaimed property that they hold.  Audits are performed that extend back twenty and thirty years, which places the business in a difficult situation since few would have records regarding unclaimed property extending back that far. As a result, many businesses have to pay the assessed value, as well as penalties and interest on property that there is no record that they owe. The numbers are simply extrapolated back and the State of Delaware keeps the revenue since there is no record of who might own this imaginary unclaimed property. 

Before writing this, I looked through Delaware’s unclaimed property website and even in the “handbook” could find no information about what the regulations are and what types of penalties and interest are levied on noncompliant businesses. If you are a Delaware business, be aware of these issues and be sure to maintain your compliance with the unclaimed property reporting requirements to avoid unreasonable fines.

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