At a Glance…

A bill has been introduced in the California Assembly that would create a voluntary disclosure agreement (VDA) program whereby holders can report and remit past due unclaimed property to the state without being assessed interest and penalty charges. If enacted, companies not currently in full compliance with the state’s unclaimed property laws will have an opportunity to come into compliance with a limited look-back period free from interest and penalty charges.

Many states offer VDA programs as an incentive for companies, as “holders” of unclaimed property, to come into compliance by voluntarily reporting unclaimed property assets to the state. Nearly 20 years ago, California statutorily established an unclaimed property amnesty program.1 That program, which ended in December of 2002, provided an opportunity for holders to come forward and report property without having to pay interest and penalties.

California’s unclaimed property statute requires the Controller, absent reasonable cause, to assess 12 percent interest on property from the date that the property should have been reported. The interest is automatically assessed, and requests for abatement must be submitted individually after the assessment. The law provides that the California legislature must act to authorize any general abatement of interest and penalties through a voluntary disclosure program. AB 2773 would do just that.

AB 2773 would require the Controller to create a program for the voluntary disclosure of unclaimed property that is consistent with specified requirements. AB 2773 would add section 1577.6 to the California Code of Civil Procedure, which would allow the Controller to waive interest and penalty charges for holders that are accepted into the program, complete the voluntary disclosures in good faith, and act consistent with program requirements. The program would be open to all holders who aren’t currently undergoing an unclaimed property audit by the state or its agent, including those with prior compliance filings. In addition to waiving penalties and interest, the VDA look-back period would cover 10 prior report years, starting from the date the holder’s intent to enter into a VDA is accepted by the Controller.

The program would end on January 1, 2024, unless a later statute is enacted before the repeal date that deletes or extends the program.

This bill is significant for any company with business in California that historically has under-reported or not reported unclaimed property because it provides an opportunity to come into compliance with a limited look-back period free from interest and penalty charges.

AB 2773 was referred to the Judiciary Committee on March 20, 2018. Notably, AB 2773 has garnered support from the leading unclaimed property organization, the Unclaimed Property Professionals Organization (UPPO). UPPO will serve as an official sponsor of the legislation. Reed Smith will continue to monitor the progress of the bill as it goes through the legislative process.