California – One Step Closer to a Voluntary Disclosure Program

Freda Pepper
February 1, 2023

On September 13, 2022, California Governor Gavin Newsom signed AB 2280 into law, paving the way for the creation of a long-awaited Voluntary Compliance Program (VDA Program). However, before such a program can be implemented, two things must take place. First, the California legislature must approve funding for the program by way of an appropriation in the Annual Budget Act. Second, the State Controller’s Office (SCO) needs to establish guidelines that provide specific procedures for the administration of the program. For more information, check out the Notice to Holders concerning AB 2280 that was sent to holders on January 30, 2023.

The law passed in September set forth the general guidelines for eligibility, as well as the benefits of the VDA program. Indeed, the new law provides that eligible holders completing the program will receive a waiver of interest due on late reported property. This is a welcomed development in light of the state’s automatic assessment of 12% interest on late reported property.

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 SCO 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. A holder subject to an outstanding interest assessment may file or refile a request to enroll in the program after resolving the outstanding interest assessment.

The SCO has waived interest assessed against the holder within the previous five years. However, if a holder acquired or merged with another entity within the five-year period, the holder may request to enroll in the program for the purpose of resolving unclaimed property that may be due and owing to the state as a result of the acquisition or merger.

To take advantage of the interest waiver, a holder enrolled in the VDA Program must:

  • Enroll and participate in an unclaimed property educational training program provided by the SCO 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 the report is due.
  • Send due diligence no less than 30 days prior to submitting the report required under the VDA Program.
  • File a notice report to the SCO within six months after being accepted into the program. Upon written request by the enrolled holder, the SCO may postpone the reporting date for a period not to exceed 18 months after the date on which the SCO notified the holder of their enrollment in 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 SCO received the notice report.  Failure to do so may result in the SCO reinstating interest.

However, before any holder can enter the program to resolve outstanding unclaimed property, the SCO’s office must develop a comprehensive program including guidelines, process and forms that may be required for participation. What that program will look like is anyone’s guess. Will it mirror the burdensome process required by Delaware, or will there be a more streamlined process where holders will be required to simply file a form? Hopefully, the SCO will work with or consult industry representatives to assist in creating a fair and reasonable program that encourages ongoing compliance.

As of now, no implementation date has been announced. It is unclear at this time whether appropriation of funds needed for the program will be included in the FY 2023-2024 budget, or whether it has already occurred. However, while we wait for the appropriation and for the VDA program to be finalized, holders should begin assessing whether they have past due property owed to California. In other words, preparation for the program should begin now. That way, once the program is implemented, you will immediately be ready take advantage of the California Voluntary Disclosure Program.

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Author

Freda Pepper

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