A Golden Opportunity: California's Unclaimed Property Voluntary Compliance Program.

• Author: Bucholtz, Cathleen A.

When it comes to unclaimed property compliance and enforcement risk, few states are as worrisome as California. Statutory interest assessments of 12 percent per annum, coupled with intra-agency cooperation, present holders with real and immediate problems should they possess past-due, California unclaimed property.

However, that may soon change.

On Sept. 13, Gov. Gavin Newsom signed California Assembly Bill 2280 (AB 2280) into law, clearing the path for the State Controller to create a voluntary compliance program. This would allow companies with past-due unclaimed properly to become compliant with the state's laws without the mandatory interest assessment at 12 percent per annum.

AB 2280 would authorize the Controller to establish a voluntary compliance program to report past-due unclaimed property by replacing the existing Sec. 1577.5 from the Code of Civil Procedure with a revised Sec. 1577.5 to be known as the California Voluntary Compliance Program (VCP).

Why Should Holders Be Encouraged About the Potential VCP?

Every company has the potential to generate unclaimed property, which is typically defined as any intangible property held by a company that has been owed to an unrelated party for a statutorily mandated period formally known as the dormancy period (three years for most California property) without an indication of interest by the owner. Once the dormancy period has passed, it becomes reportable to the appropriate state.

One reason for the excitement in a potential VCP is that while most states have processes that provide for a waiver of interest and penalties when reporting past-due property, Cal Code Civ Proc Sec. 1577 provides that unless failure to timely remit is due to "reasonable cause," the interest assessment of 12 percent per annum is mandatory. Unfortunately, the reasonable cause standard to qualify for abatement is fairly difficult for holders to achieve, meaning that many holders likely face potential interest assessments that are larger than the underlying past-due unclaimed property.

The intra-agency cooperation among the FTB and the Controller's Office is another reason why companies are eager for a VCP. The FTB is now authorized to provide the Controller's Office information from a company's tax returns, including responses to whether the taxpayer has previously filed unclaimed property reports, the date of the most recent report and the amount remitted to the state.

Many companies are concerned information...