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Delaware Starts Unclaimed Property “Compliance Reviews” (Different from Audits)

If the Delaware Office of Unclaimed Property believes that a person may have filed an “inaccurate, incomplete, or false report,” the State Escheator may authorize a “compliance review” under Del. Code Ann. tit. 12, § 1170(b). This is not a standard audit and as a result, the target is not entitled to the option of entering the state’s voluntary disclosure program rather than being subject to the audit. Nevertheless, the compliance review can result in a finding of liability.

Correspondnce between the Unclaimed Property Professionals Organization and the Delaware State Escheator’s Office acknowledges that several holders have been selected for this review. According to the Escheator’s Office, if a holder has no report or a negative report, the state will typically request a copy of the holder’s unclaimed property policies and procedures that would support the lack of property due to the state. By statute, the state may review the filed reports and “all supporting documents related to such reports.” The scope of the concept of “supporting documents” is not clear.

Practice Note: Companies, particularly those domiciled in Delaware, not filing Delaware unclaimed property reports or filing reports showing no liability, should review their policies and procedures related to unclaimed property, including how voided checks and unidentified remittances are handled. Furthermore, recent audits have included an expanded Automated Clearing House (ACH) payment review request, so a company should also review its treatment of failed ACH payments. Such a review should take place in an environment that will protect the attorney-client privilege – so, including internal counsel and/or external counsel is critical. Such an internal review should: (a) verify that the holder is in compliance with its policies and procedures; and (b) provide any necessary policy or operational changes. Conducting such a review and maintaining attorney-client privilege for appropriate elements of the review is especially important given recent false claims act developments in the unclaimed property space.

© 2019 McDermott Will & Emery

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Stephen P. Kranz Lawyer McDermott Will
Partner

Stephen P. Kranz is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office.  He engages in all forms of taxpayer advocacy, including audit defense and litigation, legislative monitoring, and the formation and leadership of taxpayer coalitions.  Steve is at the forefront of state and local tax issues, including developments arising in the world of cloud computing and digital goods and services.  He assists clients in understanding planning opportunities and compliance obligations for all states and all tax types. ...

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Counsel

Diann Smith is counsel in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office.  Diann focuses her practice on state and local taxation with an emphasis on tax challenges relating to compliance, controversy, planning and legislative activity.   

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Eric Carstens Tax Attorney McDermott Will Emery
Associate

Eric D. Carstens is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office. He focuses his practice on state and local tax matters.

Eric assists clients with state tax controversy, compliance and multistate planning across all states for a variety of tax types and unclaimed property. He engages in all forms of taxpayer advocacy, including litigation, legislative monitoring and audit defense. He works closely with several of the Firm’s taxpayer coalitions focused on specific state tax...

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