Legislation for California unclaimed property voluntary compliance program ready for implementation

On Sept. 13, 2022, Gov. Gavin Newsom signed into law California Assembly Bill 2280 (A.B. 2280) which allows for the creation of the state’s first voluntary compliance program (VCP) for holders of unclaimed property. Now that the governor has signed the bill, the California State Controller’s Office (SCO) still needs to develop the mechanics of the program and create guidelines and forms for the program, including the process by which interested companies can apply to the VCP.

The new law replaced the existing Section 1577.5 from the California Code of Civil Procedure to create the VCP, which:

• Authorizes the controller to establish a VCP for holders for the purpose of reporting past-due unclaimed property
• Allows a holder that has not reported unclaimed property or has past-due property to request to enroll in the program using a form prescribed by the controller
• Allows the controller, in their discretion, to enroll eligible holders in the program, noting that a holder is ineligible to participate in the program if any of the following apply:

1. At the time of the holder’s request to enroll, the holder is the subject of an examination or has received notification of an impending examination under Section 1571
2. At the time of the holder’s request to enroll, the holder is the subject of a civil or criminal prosecution involving compliance with the state’s unclaimed property statutes
3. The controller has notified the holder of an interest assessment under Section 1577 within the previous five years and the interest assessment remains unpaid. However, a holder subject to an outstanding interest assessment may enter the VCP after the outstanding interest assessment has been resolved.
4. The controller has waived interest assessed against the holder under the VCP within the previous five years. However, if a holder acquired or merged with another entity within the five-year period, the holder may request to enroll in the program for the purpose of resolving unclaimed property that may be due and owing to the state as a result of the acquisition or merger.

• Requires the controller to waive interest assessed under Section 1577 for a holder enrolled in the program if the holder does all the following within the prescribed time frames:

1. Participates in an unclaimed property educational training program provided by the controller within three months after enrollment in the program
2. Reviews their books and records for at least the previous 10 years (beginning from June 30 preceding the date the report under the VCP is due to the controller)
3. Makes reasonable efforts to perform due diligence no less than 30 days prior to submitting the report required by the program
4. Files the initial report (i.e., notice report) to the controller within six months after enrollment in the program
5. However, upon written request by the holder, the controller may extend the reporting date for up to 18 months after the date the holder enrolled in the program
6. Submits the final report (i.e., remit report) and pays all property specified no sooner than seven months and no later than seven months and 15 days after the controller received the initial report (normal bifurcated reporting process)

• Allows the controller to reinstate interest assessed under Section 1577 if the holder does not pay or deliver all escheated property specified in the report submitted pursuant to and within the specified time frames
• Provides that the controller may adopt guidelines and forms that provide specific procedures for the administration of the program

Other changes to California’s unclaimed property laws brought about by A.B. 2280 include:

• Section 1577 was amended to expand the existing $10,000 interest cap for a holder who delivers property in a timely manner, but files a report that is not in substantial compliance with Section 1530 (notice report) to include reports filed under Section 1532 (remit report).
• Section 1582 was amended to impact the practices of heir finders and asset recovery firms pertaining to California unclaimed property claims. Specifically, it provides that an agreement to locate property is invalid if it was entered into between the time it was reported as unclaimed property and when it was remitted to the state, or if it requires the owner to pay a fee prior to approval of the claim and payment of the property to the owner. Further, it now requires a signed agreement disclosing the nature and value of the property, the address where the owner can directly claim the property, and caps fees at 10% of amount recovered.
• Cal. Gov. Code Section 7927.015 was added to provide that there is no requirement to disclose records that the controller and third-party auditors obtain as a result of an examination other than records of property that should have been reported to the controller as unclaimed property.
• In an effort to protect sensitive data and personal identifiable information, Cal. Gov. Code Section 7927.425 was added to provide that there is no requirement to disclose records related to statements of personal worth or personal financial data, including, but not limited to, wills, trusts, account statements, earnings statements, or other similar records, or personal information including Social Security numbers, federal employer identification numbers, etc.

Baker Tilly will continue to monitor the SCO for information on how companies can apply to the VCP and any other updates regarding the implementation of the VCP.

Please reach out to any member of the Baker Tilly unclaimed property management team if you have any questions about this or any other unclaimed property developments likely to impact your company.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.