California provides initial guidance on unclaimed property VCP

In detail

Background

Information sharing of unclaimed property reporting

The California Franchise Tax Board (FTB) requires businesses filing a corporation franchise/income tax return, partnership return, and LLC return to disclose their unclaimed property reporting compliance beginning with the filing of their 2021 business tax returns.

Observation: Enacted legislation enabling the FTB’s inquiry authorizes it to share the information gained with the SCO to aid in its enforcement of unclaimed property laws. See PwC Insight here for more information.

Unclaimed property VCP may waive interest imposed

California enacted legislation on September 13, 2022 (effective January 1, 2023), authorizing the Controller to establish a VCP for eligible unclaimed property holders to waive the 12% interest imposition if a holder participates in the program and completes all the VCP requirements.

Observation: Because California’s lookback period for unclaimed property audits generally is 10 years, assessed interest can exceed the actual unclaimed property owed. Holders should be aware of the FTB’s additional scrutiny through the business tax return reporting requirement and should consider whether the VCP would limit interest liability. See PwC Insight here for more information.

SCO provides guidance on VCP next steps

The SCO issued guidance stating that holders interested in applying for a VCP should complete:

• A VCP interest form to receive an application form when it is available
• An application (when available) including the following information
  • Staff members who will attend training and submit reports
  • Estimated value of inactive properties and accounts in holders’ records.

The SCO noted that after reviewing applications and approving enrollment, it will “provide due dates for required deliverables that coincide with the standard unclaimed property reporting cycle.”

Be aware: Unclaimed property holders that submit the interest form will be applying for the VCP. Neither filling out the interest form nor applying for the VCP provides protection against an unclaimed property assessment. Before submission, holders should complete a comprehensive review to have a complete understanding of their potential liability in California, and to lay the groundwork for multistate compliance.

Initial enrollees are provided certain assigned due dates

Initial VCP enrollees will be assigned the following due dates in the upcoming reporting year:

• July 31, 2023 – Required training completed
• September 30, 2023 – Due diligence completed
• Before November 1, 2023 – Notice Report submitted
• June 1-15, 2024 – Remit Report and remittance submitted.

Observation: The SCO stated that the program will be ongoing, and that it will continue to accept applications and provide due dates to subsequent enrollees that are consistent with future report years. Although California is taking steps to implement the VCP, many questions remain including (1) how tax return information collected will be used, (2) whether all initial enrollees will be accepted into the program, (3) how comprehensive the review process will be and if holders will have the ability to perform a self-audit, (4) who will undertake review on behalf of the Comptroller, and (5) when additional guidance will be released.