Deconstructing the California Voluntary Compliance Program

What is It and Why Should Holders Consider Applying?

The California Voluntary Compliance Program (“VCP”) is an attractive opportunity for companies (also known as “holders”) with past due unclaimed property to come into compliance with California’s unclaimed property law, set themselves up for successful ongoing compliance and best of all, obtain a waiver of the mandatory 12% per year interest assessment on any past due property reported. Holders can also avoid a potential audit, which is often costly and time-consuming. Holders can apply to the VCP at any time and are not beholden to California’s report and remit deadlines. A holder’s responses to certain questions on its business tax forms, a result of Assembly Bill 466, is an incentive for holders to come into compliance and consider whether to apply, as these targeted questions ask whether the company has filed an unclaimed property report with the California State Controller’s Office (SCO), and if so, the date of the report and the amount remitted. As the Franchise Tax Board is authorized to share a holder’s compliance history with the SCO, it could potentially put the holder at risk of an audit.

How Did We Get Here? Why Now?

The VCP, which became effective on January 1, 2023, per Assembly Bill 2280, has been well received by the holder community. In 2018 there was a one-time 5-year VCP available to holders and prior to that, back in 2001, the state offered a one-time amnesty program, which was extended by a year.

Is My Company Eligible?

Holders are eligible so long as the holder:

Is not the subject of an unclaimed property examination and has not received notice of a pending examination;
Is not the subject of a civil or criminal prosecution involving compliance with the unclaimed property law;
Does not have an unpaid or unresolved interest assessment within the past 5 years (though a holder can refile after resolving the assessment); and
Has not had interest waived under the VCP within the past 5 years (though a holder can re-apply to resolve unclaimed property related to a merger or acquisition).

How Can We Apply?

Holders should first determine whether they have past-due property to report to California. This will entail some level of review of the entities and properties with past-due liability (see below). Holders can submit the completed application (VCP-01) on the SCO’s website: Voluntary Compliance Program. The holder will need the information of at least two staff members to participate in training (holder advocates may also join) and know whether policies and procedures are in place for unclaimed property reporting. They will also need to estimate the total amount of unclaimed property liability and how long it will take to prepare and submit the Notice Report (estimated timing does not affect eligibility).

The SCO will review the application for eligibility and either send an enrollment letter with a VCP Requirements Form (VCP-02), which includes important deadlines to meet, or a denial letter. Generally, timing for approval is 2-3 weeks after receipt of the application.

What Should I Consider BEFORE Applying?

Holders should consider the following questions to determine how long it will take to review their books and records for the past 10 years (plus dormancy). By the time a holder applies, the state assumes that the holder has at least started the review, as one of the questions on the VCP application asks for an estimate of the holder’s liability. Finally, holders want to ensure that deadlines can be met:

What entities and property types will be included? Note that the waiver will only cover the property types in the VCP (unlike Delaware’s voluntary disclosure agreement (VDA) program).
Is there a team that can review and gather documentation?
Are policies and procedures in place? If so, these should be reviewed.
Are the company’s records centralized?
How does the company handle outstanding liabilities?
Can the holder estimate the value of the past-due property?

When to enroll is also important, as the completion deadlines will be based on the enrollment date.

What to Be Aware Of?

As a reminder, the interest waiver is only for the property types covered in the VCP. If a company is in the VCP and receives the one-time extension (must be made in writing at least 30 days prior to the due date, needs a reasonable basis, is up to 18 months, and is at the discretion of the SCO), but cannot complete the review within the extended period, the holder becomes ineligible for the VCP and will not receive the interest waiver. Finally, the SCO reviews the reports to ensure they are submitted in good faith. If the SCO believes the holder is not reporting property in good faith, the SCO reserves the right to audit the holder and can reinstate interest on the property.

You’re In, Now What?

Important deadlines are set forth in the VCP-02. Holders must first complete a 2-hour training webinar within 90 days of enrollment. This covers California’s unclaimed property law, including their unique two-part reporting process, and the VCP program, and will also provide tips on how to stay in compliance after the VCP. Note there is a quiz at the end! Holders must then complete the review of their books and perform due diligence within 30 days of submitting the Notice Report. Once the Notice Report is accepted, the SCO sends out a Holder Remit Reminder Letter (14F), which includes the Remit Report due date. Prior to submitting the Remit Report, holders must respond to any due diligence inquiries, including any resulting from the state’s due diligence outreach. Finally, holders must submit the Remit Report 7 -7.5 months after the Notice Report and remit funds by electronic fund transfer (EFT).

How Can We Help You?

MarketSphere can assist holders in determining whether the California VCP is in the best interest of the holder. If it is, our knowledge and expertise guide holders through the process, suggest and work alongside legal counsel if merited, and can help you manage everything from implementing or improving policies and procedures to performing due diligence and reporting and remitting funds. We also set holders up for future compliance and assist with any past-due property that the holder might have in other states. Contact us for expert guidance and service about the California VCP or any other unclaimed property issue.

DON’T MISS OUT. MarketSphere is organizing a webinar on February 20th at 1 PM CST featuring Gary Qualset, Project Director at California’s State Controller’s Office, to further discuss the California VCP. Invitations to register for this event will be sent out in early February. If you don’t see an invitation in your email inbox, be sure to follow us on LinkedIn for the registration announcement.

*Content contained in this article is considered accurate as of the publish date.