California’s proposed unclaimed property amnesty program

11 April 2022 Reed Smith In-depth

Inicio Perspectivas California’s proposed unclaimed property amnesty program

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.

Autores: Sara A. Lima

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.

California’s previous amnesty program

While the program is similar to California’s previous amnesty program offered in 2001 (and extended through 2002), the CVCP would not have a fixed end date and instead, could be a permanent fixture of California unclaimed property law. However, in its current form, AB 2280 provides for a more restrictive criteria for eligible participants than the prior amnesty program, and provides a shorter time to identify, report, and remit past due property.

California’s focus on unclaimed property compliance

AB 2280 does not appear in a vacuum. It is only one piece of the State’s renewed efforts to enforce its unclaimed property laws. It comes as the Controller has recently proposed regulations pursuant to California Code of Civil Procedure §1571(c), which authorized the Controller to engage third-party unclaimed property auditors. The introduction of AB 2280 also follows on the heels of AB 466, which became law on January 1, 2022, and which requires companies filing California franchise tax returns to disclose information about previous unclaimed property report filings, including when the last report was filed, and how much was remitted. Accordingly the California FTB has added such questions to 2021 Forms 100, 100S, 100W, 565, and 568. AB 466 allows the FTB to share the disclosed information with the Controller. Perhaps most concerning, the State’s Department of Justice has recently intervened in “whistleblower” lawsuits alleging unclaimed property noncompliance.

Take away

Companies are well advised to renew their focus on California unclaimed property compliance now, especially if they file tax returns with the FTB. AB 2280 is making its way through the California legislative process and recently passed in the Assembly’s Judiciary Committee, as amended, via a 9-0 vote. While AB 2280 still must pass the full Assembly and the Senate, various state agencies have already renewed efforts to enforce California’s unclaimed property reporting requirements. Holders of California unclaimed property that are not currently in compliance should begin making preparations to participate in the CVCP in the event that AB 2280 passes.

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