The Delaware Department of Finance is reaching out to companies under an unclaimed property audit and inviting them to participate in their new Expedited Audit Program. For most companies, the downside of participation in the program will outweigh the upside.

The Delaware Department of Finance is reaching out to companies under audit and alerting them to their new Expedited Audit Program for unclaimed property pursuant to 12 Del. C. 1172, recently enacted through Delaware Senate Bill 104. The Expedited Audit Program requires an eligible company under audit to make a submission to the State by September 29th to apply for the program. A company is eligible if it received notice of audit after February 1, 2017. For most companies under audit, the upside of participating in the Expedited Audit Program would be outweighed by the downside. This is because the program works as follows.

If the company agrees:

  1. Not to object to any Auditor requests,
  2. To accept Delaware’s unconstitutional estimation method,
  3. To waive all appeal rights and agree to make full payment before seeing any determination, and
  4. To provide all outstanding responses to open requests and a work plan by September 29th;

Then you may (but are not guaranteed to) lock-in 1% interest on a final assessment (which, as a reminder, you have already agreed up front not to contest).

However, by not participating in the expedited audit, and continuing on the current path, you may negotiate a full waiver of all interest. (There is a new “floor” on interest, but that kicks in only for audits commenced after 8/1/21.) The main risk of not participating is the potential for a 50% interest assessment. However, we do not believe this risk necessarily justifies participation. As companies retain their appeal rights, and in light of the federal court’s condemnation of Delaware’s estimation methodology, the base on which the 50% may be calculated may be materially lower than if you participate in the expedited audit. That is, 50% of interest on a very small base may be less than 1% interest on a potentially large base under the Expedited Audit Program.

In light of the pending litigation about Delaware’s audit process, the amount of work that is required simply to apply to the program, the waiver of significant rights, and the lack of any concrete benefit to holders, this appears to be a last chance effort for the state to lock in collections from its current audits, before any successful challenges to its audit methodology. Except in rare circumstances, we anticipate we would advise companies currently under a Delaware unclaimed property audit to stay the course, especially if it has identified any potential legal concerns (including estimation) related to the audit.