United States: Delaware Publishes Draft Unclaimed Property Audit Regulations

At a Glance...

For the second time this year, the Delaware Department of Finance has published draft regulations governing unclaimed property audits. As required by law, these regulations address Delaware unclaimed property audit procedures, estimation, and sampling methodology, as well as unclaimed property record-retention requirements. To the extent your company is under audit by Delaware and is eligible to convert the audit to the VDA program pursuant to the provisions of Senate Bill 13, the 60-day timeline for electing to convert has not yet begun to run, because these regulations were published in draft form. Comments may be submitted through August 31, 2017. The regulations would likely become final no earlier than October 1, in which case, the earliest likely deadline for conversion would be November 30.

What's in the new draft regulations?

The new draft regulations appear to be very similar to the prior draft regulations that were published April 1. Here are a few key takeaways from the new draft:

  • Scope of audit expressly includes all affiliates of the holder and any and all records. (In the VDA program, the holder may determine the scope of entities included to some degree, but will only obtain release for those entities.)
  • Nondisclosure agreements: A form nondisclosure agreement ("NDA") is no longer required, although a sample is provided. In contrast to the prior draft regulation, the new draft no longer requires adherence to the security standards outlined by the International Organization for Standardization, but rather permits a security standard to be tailored by the auditor. The new draft regulation continues to allow auditors to retain the holder's documents for as long as the auditor is contracting with the state. However, the new draft, like the prior draft, also prohibits an auditor from soliciting other states once an NDA is signed, and provides certain data security breach protections to the holder.
  • Auditors are permitted to come on-site and interview "key personnel."
  • The statutory record-retention requirement is broadened to include "date, place, and nature of the circumstances that gave rise to the property right." The new draft lists various documents (to be retained for 15 years), including bank statements, bank reconciliations, detailed general ledgers, aged accounts receivable reports, and more.
  • An officer of the holder still must certify availability of records, but language has been added to allow such certification to be to the best of his or her knowledge, after a reasonable inquiry and due diligence. A false statement, as determined by the State, is considered a "willful misrepresentation" where it is "made with intent to mislead the State Escheator."
  • Estimation is still permitted based on extrapolations of property subject to escheat to other states, a method that the Temple-Inland court held resulted in "significantly misleading results," based on an interpretation of Texas v. New Jersey that went to "troubling lengths."1 Thus, it appears that exempted business-to-business property, as well as reported items, remain in the estimation calculation.
  • Various provisions in the new draft relating to estimation raise concern, including a provision that adopts a narrow interpretation of periods with "researchable" records, as well as provisions describing how the estimation will be performed.
  • For purposes of selecting items to be reviewed in an audit, checks outstanding for more than 90 days and checks voided 30 days or more after issuance will be presumed abandoned in the absence of evidence to prove otherwise. This contrasts with the standard applicable in the VDA program, which applies the 90-day aging for both outstanding checks and voided checks.
  • The State Escheator's settlement authority is confirmed.
  • Upon request by the holder, the State is required to provide all records of prior filed unclaimed property reports.
  • For purposes of determining whether good cause exists for the abatement of interest or penalties, the State Escheator may consider the following factors: whether the holder has a significant history of filing unclaimed property reports; the responsiveness of a holder during the examination; and whether the holder used ordinary business care in its compliance efforts.
  • An anticipated audit timeline of 24 months is identified. This is the same period identified for a VDA.
  • No information is provided regarding "expedited examinations," other than an indication that additional information will be published by form at a later time.
  • Actions that do not indicate the owner's interest in the property are identified. For example, the following do not indicate an interest in property: automatic postings; automatic reinvestments; computer system conversion dates and non-return of mail (other than a non-returned IRS Form 1099 for ACH or Dividend Reinvestment accounts).
  • A sufficient address for property is defined as an address that includes at least two of the following three data points (assuming the two data points are not in conflict): a city; a state or country code; and a postal code.

Differences between audit and VDA

Although there is no practical difference between an audit and Delaware's VDA program on certain key points (e.g., lookback period, method or records used to determine liability, and burdens to determine researchable records), there are some key differences:

  • The presumption of abandonment based on age of voided checks (30 days for audits vs. 90 days for VDA);
  • Costs: Contingent-fee contract auditor for audit vs. holder-paid advocate for a VDA;
  • Up to 50% of applicable interest can be abated for good cause in an audit, whereas full interest relief is available in a VDA, if the VDA is concluded within two years; and
  • Holders reserve the right to challenge legal issues arising out of audit, whereas a holder waives the right to challenge the results of a VDA. (In order to challenge a VDA, a holder must withdraw from the VDA program and be subject to audit.)

Major issues subject to challenge

The new draft regulations contained very minor revisions to the original draft regulations proposed in April. As a result, the following legal challenges to Delaware's audit practices remain:

  • The estimation methods used by auditors are still subject to challenge on multiple grounds.
  • The scope and breadth of an audit may be challenged as contrary to certain Constitutional requirements under the Fourth and Fifth Amendments, and under federal common law.
  • The aging criteria applied by auditors are subject to challenge as invalid burden shifting.
  • Various definitions in the new draft regulations may be subject to challenge, including, for example, the definitions of "researchable records" and "address."

A copy of the new draft regulations can be found here.

About Reed Smith's Unclaimed Property Team

Reed Smith's State Tax team advises clients on all aspects of state unclaimed property law. From bringing organizations into compliance, to audit defense and planning, our attorneys are committed to defining, managing and minimizing clients' exposure as holders of unclaimed property. Our lawyers are located in several offices across the country, and we have extensive experience representing clients in the financial services, retail, pharmaceutical, health care and energy industries. We regularly advise clients on unclaimed property issues arising during mergers and acquisitions, as well as during contractual negotiations with third-party administrators.

About Reed Smith State Tax

Reed Smith's state and local tax practice is composed of more than 35 lawyers across seven offices nationwide. The practice focuses on state and local audit defense and refund appeals (from the administrative level through the appellate courts), as well as planning and transactional matters involving income, franchise, unclaimed property, sales and use, and property tax issues. Click here to view our State Tax team.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions