Delaware Unclaimed Property Audit Techniques Under Challenge

Delaware is once again coming under fire for aggressively pursuing what they perceive as unclaimed property from thousands of corporations that call the state their legal home.

One such corporation, Temple Inland is currently challenging an audit conducted by Kelmar, one of Delaware’s third party contingent fee auditors, in Federal District court after coming up empty handed in Delaware’s informal appeals process and by passing what is likely not perceived as an objective hearing in Delaware’s Chancellery Court system.

What makes this case fairly unique is that Temple Inland is arguing that Delaware, through its auditors, has violated several Federal well-established constitutional guidelines by using estimation techniques for periods in which Temple Inland no longer had detailed records. Temple Inland is arguing that Delaware is actually taking property of Inland (not another owner of the property) violating the “unjust takings clause” under the US Constitution. They are further arguing that Delaware is applying its own laws retroactively and is violating Temple Inland’s right to due process as well as proclaiming a Constitutional violation of the ex-post facto laws. Finally, they argue that Delaware has failed to adhere to a trilogy of Supreme Court decisions which never intended for states to apply estimation or extrapolation techniques to determine amounts that are considered as owing to one or more states as unclaimed property. In fact Temple Inland argues that in one Supreme Court Decision ( Delaware v New York, 57 U.S. 490 (1993)), the Court was explicit in barring a state from estimating a liability in lieu of a “precise” ownership interest in an unclaimed item. Temple Inland is arguing that based on the US Constitution, a series of US Supreme Court rulings, and most recently a Federal Appeal Court ruling, the State cannot arbitrarily attempt to collect as unclaimed property, amounts which in fact either are subject to the jurisdiction of another state, or is in fact owed to no one. 

Given the developing hostile corporate environment surrounding the state’s assertive unclaimed property policies coupled with the potential loss of millions of dollars in revenue the state depends on to balance its books, the state’s Legislature has mandated that Delaware develop a task force to address the growing concern of all parties involved. While a great deal of frustration was raised by government representatives and officials during the first meeting in late July, not much else has been accomplished. The task force is scheduled to meet again in early September.

Bob Peters to speak at upcoming COST 45th Annual Conference

To learn more about the unclaimed property issues facing Delaware and the companies headquartered there, join me at the upcoming COST 45th Annual Conference on October 19-22, where Bob and his co-presenter, Diane Green-Kelly of Reed Smith will be discussing “Unclaimed Property-Audit and Litigation Strategies” click here for more information or to register for this event.

Last chance to enter Delaware’s Voluntary Unclaimed Property Disclosure Program

The deadline for corporations who have yet to voluntarily enter into Delaware’s unclaimed property Voluntary Disclosure Agreement (VDA) is coming to a close. 

As a reminder, companies considering entering the program only have until September 30, 2014 to submit a notice of intent (Form VDA-1). Companies who qualify for the limited look back period to 1993 will have until June 30, 2016 to complete the submission process to declare any prior years’ unclaimed property liability to avoid penalties, interest and the risk of audit. Eligible companies include those that are not currently under audit, even if they may have previously participated in an earlier VDA program or were subject to audit in prior years. Delaware reports that over 500 public and private companies have signed on to the program and continues to warn entities that do not choose to participate continue to risk possible audit exposure back to 1981.

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