The California State Controller (Controller) is sending letters to businesses that may be holding past-due unclaimed property (hereafter, holders), reminding them of the state's Voluntary Compliance Program (VCP). Under the VCP, holders of unclaimed property (e.g., uncashed payroll checks, refunds, deposits or credits) that report past-due unclaimed property and meet the requirements of the VCP will have the 12% interest assessment on past-due unclaimed funds waived. The Controller's letter also indicates that voluntary reporting now may help reduce potential audit exposure later.

The VCP is ongoing, so holders may apply to the VCP at any time throughout the year, with up to an 18-month extension available post enrollment.

VCP eligibility

Holders are eligible to participate in the VCP if they meet all the following:

• They are not currently subject to an unclaimed property examination or to a civil or criminal investigation.
• They do not currently have unpaid interest assessments from the past five years.
• They have not had interest waived under the VCP within the past five years (with certain exceptions).

Holders, however, may file or refile a request to enroll in the program after resolving (paying) the outstanding interest assessment. If a holder receives an interest waiver from the Controller and acquired or merged with another entity within the five-year period preceding the interest waiver, the holder may submit a VCP enrollment request to resolve past-due unclaimed property resulting from the acquisition or merger.

VCP requirements

If a holder's completed VCP application to enroll in the program is approved by the Controller, the holder must:

• Enroll and participate in an unclaimed property educational training program provided by the Controller
• Review its books and records for reportable unclaimed property — this process may be started before submitting the VCP application
• Send due diligence notices to owners whose property is determined to be reportable
• Submit a notice report by the assigned deadline
• Respond to inquiries from owners of unclaimed property and update books and records as well as the unclaimed property report
• Submit to the Controller an updated report of unclaimed property and pay the value of or deliver to the Controller all escheated property specified in the original report (no sooner than seven months and no later than seven months and 15 days after the Controller received the original report)

The Controller may reinstate interest if these conditions are not met.

Other

Holders participating in the VCP will review their own records; however, the Controller reserves the right to review the holders' records.

Additional information on the VCP, including the application form and the application webinar, is available here.

Implications

Eligible holders should consider participating in the VCP to come into compliance with California unclaimed property laws and have the 12% statutory interest imposed on past-due unclaimed property waived, particularly if in receipt of such a reminder letter. Given that the Controller's letter indicates that voluntary reporting now could reduce potential audit exposure later, taxpayers should consider voluntarily reviewing their records and reporting any unclaimed property.

Additionally, beginning in 2021, California law requires California taxpayers to respond to unclaimed property compliance questions on their state business tax reports filed with the California Franchise Tax Board (CA FTB). Under that law, the CA FTB may share compliance responses with the Controller, which could aid in more swiftly identifying non-compliant holders, possibly resulting in increased state audits of unclaimed property compliance (see Tax Alert 2022-0244) and the identification of which holders to issue such reminder letters to.

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