Over 50% of U.S. publicly traded corporations are organized in Delaware, permitting them to take advantage of the state’s favorable and flexible Delaware General Corporation Law and the well-developed body of case law interpreting that statute. An unintended consequence of Delaware incorporation is that these corporations have Delaware unclaimed property reporting obligations. This is because state unclaimed property laws have been interpreted to require corporations with unclaimed property – uncashed checks, unclaimed accounts payable, and other liabilities – to report the property to their state of incorporation when the payee’s address is unknown. As a result, unclaimed property revenues constitute Delaware’s third largest revenue source, annually generating approximately $500 million of revenue.
As discussed in our May 2013 issue, Delaware adopted a voluntary disclosure program designed to encourage noncomplying unclaimed property holders to report historical liabilities. Features of this program included a look-back reporting period extending back to 1993, rather than as far back as 1981 for non-filers. In addition, interest and penalties on unclaimed property liabilities can be waived under the program. In order to take advantage of the program holders of unclaimed property were required to enter voluntary disclosure agreements prior to June 30, 2014 and complete the disclosure process by July 1, 2015. However, in June, these deadlines were extended to September 30, 2014 and July 1, 2016 respectively. According to the State of Delaware’s website, as of July 1, 2014, over 550 companies have enrolled in the voluntary disclosure program, with hundreds more expected to enroll in the program before the September 30th deadline passes.
Delaware’s voluntary disclosure program was instituted because unclaimed property exposure, particularly in light of the Delaware Department of Finance’s aggressive enforcement tactics, caused some companies to consider whether Delaware unclaimed property exposure outweighed the benefits of incorporating in Delaware. Delaware corporations should make a determination whether they have historical unreported unclaimed property liabilities prior to September 30, 2014, in order to take advantage of the voluntary disclosure program. Failure to do so, will likely subject them to increased audit risk based on expected stepped up enforcement efforts by the Delaware Department of Finance after the September 30th deadline passes.