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California Introduces Unclaimed Property VDA Program

Freda Pepper
February 18, 2022

On February 16, 2022, California introduced AB 2280, allowing the California Controller to establish a California Voluntary Compliance Program (VDA Program). This is a significant development as California has long declined to provide a formal or informal unclaimed property voluntary disclosure agreement (VDA) program, despite automatically assessing 12% interest on late reported property. In the bill, California acknowledges that the 12% interest assessment has been a deterrent to would-be first-time filers and to holders that consistently report but have past due property, from coming into compliance. Under the proposed VDA program, the state will waive the interest assessment for those holders who complete the program.

What is an unclaimed property VDA program?

A VDA is a means for holders to come into voluntary compliance with a state’s unclaimed property law without incurring interest or with a reduced interest assessment. By entering into a VDA, businesses can recognize their state unclaimed property exposure and willingly pay any outstanding liabilities and potentially reduce the risk of an audit. Typically, only companies that have not received an audit notice can enter into the VDA program. Once a notice of audit is received, the ability to file voluntarily is extinguished.

VDA programs vary from state to state but there are some common requirements, including:

  1. An enrollment process
  2. Scoping and analysis
  3. Quantification of unclaimed property
  4. Submission and validation
  5. Closing process and documentation

States frequently recommend using a third party holder advocate, such as Sovos, to ensure efficiency and assist with the complexities of the VDA process.

Benefits of filing a VDA

Companies that have never reported unclaimed property, as well as companies that are currently out of compliance with respect to one or more property types, should consider voluntary compliance programs offered by the states to take advantage of the benefits the programs provide. The major benefits include the reduction or waiver of interest on past due property and a reduced risk of audit. Further, most VDA programs offer more favorable review criteria and lookback periods than those used in an audit setting and take less time to complete than an audit.

California AB 2280 – Introduced

Interest due on late reported property will be waived for holders completing the program. The VDA program will be available to any holder who has failed to timely report property. However, a holder is ineligible to participate in the program if any of the following apply:

  • The holder has received a notice of audit.
  • The holder is the subject of a civil or criminal prosecution involving unclaimed property compliance.
  • The Controller has notified the holder of an interest assessment within the previous five years and the interest assessment remains unpaid at the time of the holder’s request to enroll.
  • The Controller has waived interest assessed against the holder within the previous five years.

A holder enrolled in the VDA Program must do the following to take advantage of the interest waiver:

  • Enroll and participate in an unclaimed property educational training program provided by the Controller within three months after being accepted into the VDA Program.
  • Review their books and records for at least the previous 10 years, starting from June 30 or the fiscal year end preceding the date accepted into the VDA Program.
  • Send due diligence no less than 30 days prior to submitting the report required under the VDA Program.
  • File a notice report to the Controller within six months after being accepted into the program.
  • File a final report and remit all escheated property specified in the report, no sooner than seven months and no later than seven months and 15 days after the Controller received the notice report. Failure to do so may result in the Controller reinstating interest.

The VDA Program is contingent upon an appropriation by the Legislature in the annual Budget Act to fund the program. We will keep you informed on the progress of this impactful legislation.

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Author

Freda Pepper

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