The California Legislature passed AB-2280 on August 17, 2022, which, if signed by Governor Gavin Newsom, would amend California’s existing Unclaimed Property Law. Governor Newsom has until September 30, 2022, to veto the bill.
The bill would authorize the controller to:
- Establish the California Voluntary Compliance Program (VCP)
- Waive the 12% interest payable for untimely unclaimed property reports for certain qualifying taxpayers
Unclaimed Property Background
Historically, the threat of an audit and the 12% interest assessment were not sufficient to compel businesses to report past due property.
As of 2020, approximately 1.3 million businesses that file taxes with the California Franchise Tax Board are estimated to have unclaimed property to report but failed to submit a report to the controller.
Deterrents for filers due to potentially large assessments include lack of awareness and understanding of the Unclaimed Property Law, the complex reporting process, and lack of online submission methods.
The disclosure of personal information may also discourage owners from claiming property held by the controller.
Under the current law, records of holders that the controller or third-party auditors obtain during an examination may be subject to disclosure under the California Public Records Act. Holders are often private businesses that have a strong interest in maintaining confidentiality of their financial records.
Interest Limits and Waived Payments
This bill would limit filers to $10,000 of interest payable if a holder files an unclaimed property report that is not in substantial compliance with statutory requirements both:
- After the initial report
- Before the payment or delivery for property that may not be subject to escheat
The bill would also authorize the controller to waive the interest payable if the holder’s failure with the report is due to a reasonable cause.
The controller would also be able to waive the interest payable if an eligible holder participates and completes all the requirements of the VCP.
Voluntary Compliance Program Requirements
A holder that hasn’t reported unclaimed property would be able to request to enroll in the program using a form prescribed by the controller.
The controller, at their discretion, would be able to enroll eligible holders in the program.
Some holders will be ineligible for enrollment in the VCP. A holder will be ineligible for enrollment, if at the time the holder’s request to enroll is received by the controller, the holder is subject of:
- An examination of records or has received notification from the controller of an impending examination.
- A civil or criminal prosecution involving compliance with California Unclaimed Property Law.
Additionally, holders will be ineligible if the controller:
- Notified the holder of interest due within the previous five years and the interest remains unpaid at the time of the holder’s request to enroll. A holder subject to an outstanding interest assessment may file or refile a request to enroll after resolving the outstanding interest assessment.
- Waived interest assessed against the holder within the previous five years. If a holder acquired or merged with another entity within the five-year period, the holder may request to enroll in the program to resolve unclaimed property that may be due as a result of the acquisition or merger.
Interest Waived Under VCP
All holders will have to comply with the following requirements to have interest waived by the controller after enrollment in VCP:
- Enroll and participate in an unclaimed property educational training program provided by the controller within three months after the holder is notified by the controller of enrollment in the VCP.
- Review books and records for unclaimed property for at least the previous 10 years, starting from June 30, or the fiscal year end preceding the date on which the required report is due.
- Make reasonable efforts to notify owners of reportable property by mail or electronically, no less than 30 days prior to submitting the required report.
- File an initial unclaimed property report to the controller as required within six months after the enrollment date. Upon written request by the enrolled holder, the controller may postpone the reporting date for a period not to exceed 18 months after the date the controller notified the holder of their enrollment in the program.
- Submit an updated report and pay or deliver all escheated property within the prescribed time period, no sooner than seven months and no later than seven months and 15 days after the controller received the initial unclaimed property report. The controller may reinstate the 12% interest waived if the holder doesn’t pay or deliver all escheated property specified in the updated report within the prescribed time.
Disclosure of Records
The Unclaimed Property Division wouldn’t require the disclosure of records and information provided to the controller’s office related to statements of personal worth or financial data, including, but not limited to:
- Account statements
- Earnings statements
- Other similar records
The Unclaimed Property Division also wouldn’t require the disclosure of records related to personal information, as defined by Section 1798.3 of the Civil Code, including, but not limited to:
- Social security number
- Date of birth
- Federal employer identification number, until the controller has made payment of the property in full to the owner
- Account number, until the controller has made payment of the property in full to the owner
- Check number, until the controller has made payment of the property in full to the owner
We’re Here to Help
If your business has past due unclaimed property in California and might qualify for the new VCP, contact your Moss Adams professional to learn how we can help you make the most of this program.
You can also find additional resources at our Unclaimed Property Tax Services.