Reed Smith In-depth

The California Assembly has introduced Assembly Bill (AB) 2280, allowing for an unclaimed property California Voluntary Compliance Program (CVCP). The Controller would waive interest for past due properties reported by unclaimed property holders that voluntarily enroll, are accepted, and successfully complete the CVCP. The CVCP is particularly appealing in light of California’s 12% interest rate and renewed focus on unclaimed property enforcement. It comes on the heels of AB 466, which requires companies to disclose details of their unclaimed property compliance history on this year’s California franchise tax returns.

AB 2280

California requires companies to report unclaimed property to the state on an annual basis. However, AB 2280 includes a finding that, as of 2020, an estimated 1.3 million companies that file taxes with the Franchise Tax Board (FTB) have failed to comply with that reporting requirement. Under existing California unclaimed property law, unreported property accrues interest at 12% a year, starting from the date the holder of the property fails to timely report, pay, or deliver unclaimed property. Interest may be waived only if the holder proves the failure is due to reasonable cause. California automatically assesses interest upon the filing of a late report and, California has not allowed waivers of interest for holders coming into compliance on a voluntary basis since its last unclaimed property amnesty program in 2001/2002. This leaves holders that are seeking to remedy a history of noncompliance, often inherited from a predecessor, facing potentially severe interest costs. AB 2280 would provide some necessary interest relief for eligible holders that participate in and complete all the requirements of the CVCP.

As the legislation currently stands, some entities are ineligible to participate. Under AB 2280, unclaimed property holders are ineligible for the CVCP if, at the time they request to enroll, they:

  • Are under audit or received notice of an impending unclaimed property audit;
  • Are the subject of a civil or criminal prosecution involving unclaimed property compliance;
  • Have received an interest notice within the last five years which remains unpaid; and/or
  • Have received an interest waiver within the last five years.

Further, eligible participants must complete five requirements:

  • Enroll and participate in an unclaimed property educational training program provided by the Controller within three months after program acceptance;
  • Review books and records for unclaimed property for at least the previous 10 years, starting from June 30 or the fiscal year end preceding program acceptance;
  • File a CVCP report within six months after program acceptance;
  • Make reasonable efforts to notify owners of reportable property no less than 30 days prior to submitting the report; and
  • Submit an updated final report and payment no sooner than seven months, and no later than seven months and 15 days, from the filing of the CVCP report.

Additionally, a participant must pay or deliver all reported property to the Controller within the seven months period after filing the CVCP. If a participant fails to timely pay or deliver all reported property, the Controller can reinstate any interest assessment.