Tax News Update    Email this document    Print this document  

The California State Controller's Office (SCO) announced on its website that holders of unclaimed property (Holders) may complete an interest form for the voluntary compliance program (VCP) enacted by AB 2280 in September 2022. The VCP allows the 12% statutory interest to be waived for Holders that report past-due unclaimed property and meet the program's requirements. This unclaimed property VCP is the first of its kind offered by the SCO in over 20 years.

Holders must complete a "VCP Interest Form" to receive an application form to enroll in the VCP. The "VCP Interest Form" asks for the following information:

Business entity information

• Business entity name and state of domicile
• Mailing address
• Has the business entity submitted an unclaimed property report within the previous 10 years?

Representative information

• Have you previously reported unclaimed property on behalf of any business entity?
• Have you previously reported unclaimed property on behalf of the business entity you currently represent?
• Representative contact information

After reviewing the "VCP Interest Form," the SCO will send Holders an application form that will require certain information, such as staff members who will attend the required training and submit reports, as well as the estimated value of inactive properties and accounts to be filed.

Following review and approval of the application, the SCO will advise Holders on the due dates for deliverables, which will coincide with the state's annual reporting cycles. As of today, the due dates are as follows:

• July 31, 2023 — Required training completed
• September 30, 2023 — Due diligence completed
• Before November 1, 2023 — Notice Report submitted
• June 1-15, 2024 — Remit Report and remittance submitted

The SCO, however, indicates that the VCP will be an on-going program that Holders can enter on an on-going basis.

Holders will be ineligible to participate in the VCP if one of the following conditions is met:

• Holder is currently subject to an unclaimed property examination.
• Holder is currently subject to a civil or criminal investigation for unclaimed property compliance.
• Holder currently has unpaid interest assessments from the past five years or had an assessment waived within the past five years.

Holders, however, may file or refile a request to enroll in the program after resolving (paying) the outstanding interest assessment. If an interest waiver is received from the SCO, AB 2280 also permits a Holder that acquired or merged with another entity within the five-year period preceding the interest waiver to submit a VCP enrollment request to resolve past-due unclaimed property resulting from the acquisition or merger. (See Tax Alert 2022-1406.)

Additional SCO guidance on the VCP is available here.

Implications

With California's publication of the interest form, Holders must decide whether to be a first mover on the new VCP. While the SCO must still disclose the VCP's specifics, logistics, and process, the current information and timeline suggest a streamlined and normal reporting cycle-style review (as opposed to perhaps voluntary programs in other states that represent more of an in-depth audit-style process).

Holders should also consider how they have responded to the unclaimed property questions on their 2021 business tax reports filed with the California Franchise Tax Board (FTB). (See Tax Alert 2022-0244.) The 2021 tax report year marks the first year that unclaimed property compliance disclosures were required on tax reports. The FTB may share compliance responses with the SCO, which may assist the State in quickly identifying non-compliant Holders, possibly resulting in an increase of State audits.

Holders that anticipate participating in the VCP should consider starting the record review process before submitting the VCP application. The six-month time frame proposed to review 10 years of records in fulfillment of the VCP may not be sufficient. Additionally, the VCP application will require a Holder to estimate the unclaimed property it expects to report through the program, meaning the initial round may be best suited for Holders that have identified a discrete population of past-due property.

Holders with a history of filing California unclaimed property reports should review internal records and determine if any interest assessments issued by the State have been paid before applying for the VCP.

Ultimately, Holders may choose to wait on making a decision to participate in the VCP due to (1) the uncertainty around when they will receive the application following submission of the "VCP Interest Form," (2) the necessity to review the VCP application to gain clarity on agreement terms and impact (if any) on closing agreements and the statute of limitations, and (3) the discretionary ability of the SCO in administering the program.

———————————————

Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor