If the Delaware Office of Unclaimed Property believes that a person may have filed an “inaccurate, incomplete, or false report,” the State Escheator may authorize a “compliance review” under Del. Code Ann. tit. 12, § 1170(b). This is not a standard audit and as a result, the target is not entitled to the option of entering the state’s voluntary disclosure program rather than being subject to the audit. Nevertheless, the compliance review can result in a finding of liability.

Correspondence between the Unclaimed Property Professionals Organization and the Delaware State Escheator’s Office acknowledges that several holders have been selected for this review. According to the Escheator’s Office, if a holder has no report or a negative report, the state will typically request a copy of the holder’s unclaimed property policies and procedures that would support the lack of property due to the state. By statute, the state may review the filed reports and “all supporting documents related to such reports.” The scope of the concept of “supporting documents” is not clear.

Practice Note: Companies, particularly those domiciled in Delaware, not filing Delaware unclaimed property reports or filing reports showing no liability, should review their policies and procedures related to unclaimed property, including how voided checks and unidentified remittances are handled. Furthermore, recent audits have included an expanded Automated Clearing House (ACH) payment review request, so a company should also review its treatment of failed ACH payments. Such a review should take place in an environment that will protect the attorney-client privilege – so, including internal counsel and/or external counsel is critical. Such an internal review should: (a) verify that the holder is in compliance with its policies and procedures; and (b) provide any necessary policy or operational changes. Conducting such a review and maintaining attorney-client privilege for appropriate elements of the review is especially important given recent false claims act developments in the unclaimed property space.

Upcoming McDermott Will & Emery SALT Activities in September:

September 14, 2017: Robin Greenhouse, Kristen Hazel, Sandra McGill and Alysse McLoughlin will be speaking at McDermott Will & Emery’s Tax in the City®: A Women’s Tax Roundtable meeting in New York City about local tax updates and ethics.

September 15, 2017: Jane Wells May is speaking in Austin, TX at the ABA Tax Section Meeting about “False Claims Acts and State Taxes.”

September 18, 2017: Mary Kay Martire is speaking in San Antonio, TX at the 2017 IPT Sales Tax Symposium about “Third Party Tax Enforcement Actions.”

September 19, 2017: Arthur Rosen is speaking in San Antonio, TX at the 2017 IPT Sales Tax Symposium about sales tax nexus –“Son of Quill: The Sequel.”

September 19, 2017: Stephen Kranz is speaking in San Antonio, TX at the 2017 IPT Sales Tax Symposium about uncollectible debts – “Breaking Bad from Bad Debt.”

September 26, 2017: Cate Battin and Mary Kay Martire are presenting a “National Update on Key SALT Issues” in Rolling Meadows, IL, at the 18th Annual SALT Conference of the Taxpayers Federation of Illinois.

September 28, 2017: Eric Carstens and Nick Furtwengler will be speaking at the TEI Emerging Tax Professionals Seminar, taking place in McDermott’s Chicago, IL office, about the SALT portions of “Acquiring or Expanding a Business,” “Integration and Compliance” and “The Audit Notice Arrives: Now What?”

Wrapping up August:

Our August 2017 blog posts are available on insideSALT.com, or read each article by clicking on the titles below. To receive the latest on state and local tax news and commentary directly in your inbox as they are posted, click here to subscribe to our email list.

August 1, 2017: Implications of Federal Partnership Audit Rules for State and Local Taxation

August 8, 2017: MTC Offers 18 State Marketplace Seller Amnesty Initiative

August 14, 2017: Resistance is not Always Futile: New Decision in Ongoing Delaware Unclaimed Property Audit Litigation

August 15, 2017: Illinois Court Upholds Cook County’s Beverage Tax Finding It Passes Constitutional Muster and Related Developments

August 16, 2017: Delaware (Re)Proposes Unclaimed Property Reporting and Examination Manual Regulation

August 18, 2017: MTC Marketplace Seller Voluntary Disclosure Initiative Underway