Governor Newsom signed Assembly Bill 2280 into law on Sept. 13, 2022. The purpose of this bill was to establish a program for voluntary unclaimed property compliance (VUPC) in California. Several highlights of the bill are as follows:
- The State Controller’s Office will develop the framework of the program, including guidelines, process and forms required for unclaimed property holder participation. The specifics of the program are yet to be announced.
- Unclaimed property holders are ineligible for the program if they fall under any of the following stipulations:
- The holder is the subject of an examination or has received notification of an impending examination under Section 1571.
- The holder is the subject of a civil or criminal prosecution involving compliance with the state’s unclaimed property statutes.
- The Controller has notified the holder of an interest assessment under Section 1577 within the previous five years and the interest assessment remains unpaid.
- Note: a holder subject to an outstanding interest assessment may enter the VUPC after the outstanding interest assessment has been resolved.
- The Controller has waived interest assessed against the holder under the VUPC within the previous five years
- Note: 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.
- The Controller is required to waive the interest assessed under Section 1577 as part of the voluntary disclosure program provided the holder:
- Participates in an unclaimed property educational training program provided by the Controller within three months of enrollment in the program
- Reviews their books and records for at least the previous 10 years (beginning in June 30 preceding the date the report under the VUPC is due to the Controller)
- Makes reasonable efforts to notify owners of reportable property no less than 30 days prior to submitting the report required by the program
- Files the initial report (notice report) to the Controller within six months of enrollment in the program
- Note: The Controller may extend the reporting date for up to 18 months after the date the holder enrolled in the program upon written request
- Submits the final report (remit report) and pays all property specified in the report no sooner than seven months and no later than seven months and 15 days after the Controller received the initial report
- Additional elements of the bill include implications for agreements to locate property by third parties, disclosure of certain records including sensitive and personally identifiable information and guidance for the administration of the program.
Consider the new disclosure requirements on annual California income/franchise tax filings.
- California tax-year 2021 income/franchise business tax forms for all entity types include questions about whether a taxpayer has filed unclaimed property reports, the date of the most recent report and the amount remitted with the most recent filing. The Franchise Tax Board will share this information annually with the state Controller’s office, and the Controller may use this information to identify holders who are not in compliance with the state’s unclaimed property laws.
Make appropriate time to review and assess unclaimed property risk and tax exposure.
- With a standard audit lookback period of 10 years plus the applicable dormancy period and a 12-percent interest rate, unclaimed property non-compliance in California presents a significant risk for affected property holders. The voluntary disclosure program is expected to have interest waivers for qualifying holders among other benefits.
- The benefits of this limited program are rare (this is the first program in 20 years) and it is uncertain if a similar program will be offered in the future once this program ends.
Determine whether the voluntary disclosure program is right for the situation.
- Important considerations include the risk of audit and assessment by the Controller’s office, the potential for future controversy related to unclaimed property and addressing holder noncompliance in tax diligence exercises or financial audits.
Notably, the voluntary disclosure program is expected to be in place in 2023. Please reach out to GHJ’s tax advisors for program news, updates and a review of unclaimed property.