Revisiting California’s Voluntary Compliance Program

As previously discussed in our last blog, California Assembly Bill 2280 was signed into law on September 13, 2022, which permitted the State Controller’s Office (SCO) to introduce a voluntary compliance program (VCP), contingent upon an appropriation by the legislature to fund the program.  The program is a welcome addition in California, as it provides a mechanism for holders to voluntarily report and remit past-due property in exchange for a waiver of the mandatory 12% interest assessed on late property.

In its continuing and expanded focus on unclaimed property, California Assembly Bill 466, which became effective on January 1, 2022, requires companies to disclose the following on their income tax forms: whether an unclaimed property report has been filed with the SCO; if so the date of the last filing; and the dollar amount remitted.   The bill also authorized the Franchise Tax Board to share this information with the SCO.

In March of 2023, the SCO required holders to submit a VCP Interest Form on its website to receive an application form and established initial timelines for holders accepted into the program.  Holders no longer need to fill out the VCP Interest Form and can now click on the link to obtain and submit their VCP Application Form.

As a reminder, holders are eligible to participate in the VCP if none of the following conditions apply:

• The holder is currently under audit or has received notification of an impending audit by the SCO.
• The holder is currently the subject of a civil or criminal prosecution involving compliance with California’s unclaimed property law.
• The holder has received an interest assessment within the past 5 years that currently remains unpaid or unresolved.
• The Controller has waived interest assessed against the holder under the VCP within the previous 5 years (though the holder may request to enroll for the purposes of resolving unclaimed property due and owing to the state because of a merger or acquisition).

Once the application is approved by the SCO, a timeline and work plan will be provided to the holder. Holders should note that the terms of the VCP require that holders participate in an educational training program, review their books and records for the past 10 report years (plus dormancy), and file an initial report of past-due property within a 6-month period.  Interest continues to accrue until the holder completes the program and can be reinstated if the holder fails to meet any of these requirements.

The following is a sample timeline for a holder that was accepted into the VCP on July 11^th:

• October 12, 2023: Completion of mandatory unclaimed property training.
  • Training must be completed within 3 months of acceptance into the VCP.
• December 12, 2023: Completion of due diligence.
  • Due diligence must be completed no later than 30 days prior to the Notice Report.
• January 11, 2024: Submission of the preliminary Notice Report.
• January-July 2024: Respond to owner inquiries and reunite owners with their property.
• August 11-26, 2024: Submission of final Remit Report and remittance.

*  Note – the VCP is an ongoing program, and timelines are dependent upon the date the holder is accepted into the VCP.  These dates differ from California’s annual unclaimed property reporting deadlines (the Notice Report is due on or before November 1^st and the Remit Report between June 1^st and June 15^th of the following year).

Holders may request an extension for the Notice Report of up to 18 months, provided the holder has a reasonable basis for the extension, which will be granted at the SCO’s discretion.

Benefits of participation in the VCP include time and cost savings associated with a self-review, as opposed to a third-party multi-state audit.  While the waiver of the 12% per annum mandatory interest on past due property may be the most attractive feature of the program, holders should be aware that the waiver does not also waive the SCO’s future right to audit the same periods reviewed in the VCP.

An experienced holder advocate can assist in reviewing a holder’s books and records to identify past due property in all states, not just in California, and recommend next steps.  Holder advocates can also assist in developing robust policies and procedures around unclaimed property to ensure that the holder comes into or stays in compliance with each of the states’ unclaimed property laws.

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