California’s New Voluntary Disclosure Program
California’s New Voluntary Disclosure Program
Updated March 2023
California has not had an unclaimed property voluntary disclosure/amnesty program for nearly two decades. The resulting lack of a way for businesses holding past due unclaimed property to report it to the state without being subject to California’s 12% per year interest assessment on past due property has very likely deterred compliance with California’s Unclaimed Property Law. CA Assembly Bill 2280 (AB 2280) was passed by the legislature on Aug. 17, 2022, with the aim of addressing this deterrent by providing a long-awaited means for businesses to come into compliance interest-free through the creation of the California Voluntary Compliance Program (VCP). AB 2280 was signed by Governor Newsom on Sept. 13, 2022, and became effective Jan. 1, 2023.
On March 16, the California State Controller’s Office posted a form on its website for companies interested in participating in the VCP. On completing and submitting the form, the SCO will send interested parties an application form and additional information.
As of March 29, the VCP was an ongoing program. The dates below will be assigned to initial enrollees for the upcoming report 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.
The SCO will accept applications for future report years, so businesses that are unable to meet the due dates for the current reporting season might still be able to enter the VCP. The SCO will provide due dates to subsequent enrollees. More detailed information from the state is expected this calendar year.
AB 2280 works in tandem with CA Assembly Bill 466 (AB 466), which became effective on Jan. 1, 2022, and authorizes the Franchise Tax Board to share certain information with the SCO related to unclaimed property. The SCO will likely seek to increase compliance, currently estimated by the state to be 2%, through a combination of increased audit activity and voluntary compliance.
Who Can Enroll in the Program?
A business holding unclaimed property (holder) that wants to report past due unclaimed property may request to enroll in the program. Acceptance into the program is at the SCO’s discretion; however, the following situations would make holders ineligible:
- Holder is currently under examination or has received a notification from the SCO of a pending examination.
- Holder is the subject of a civil or criminal prosecution related to compliance with the Unclaimed Property Law.
- Holder has been notified by the SCO of an interest assessment under the Unclaimed Property Law in the last five years that remains unpaid. (Note: Paying the interest assessment would allow the holder to once again request enrollment.)
- The SCO has waived interest against the holder under the Unclaimed Property Law within the last five years.
What Are the Program Requirements?
The SCO will waive interest under the program if a holder does all of the following:
- Enrolls and participates in the SCO’s unclaimed property educational program within three months of enrollment in the VCP.
- Completes a review of books and records going back 10 (report) years.
- Complies with due diligence requirements to notify owners of reportable unclaimed property not less than 30 days from submitting the VCP filings.
- Files an initial report within six months of enrollment into the VCP. (Note: An extension of up to 12 months would be possible at the SCO’s discretion for a total of 18 months from date of enrollment to complete the VCP.)
- Files a final report between seven months and seven months and 15 days after the initial report, along with full payment.
What Happens if You Don’t Meet the Requirements?
The SCO can reinstate interest if the holder does not report, pay, and deliver all reportable property within the required timeframes.
What Else Is in AB 2280 and AB 466?
In addition to establishing a VCP, the bills provide for the following:
- Limit interest to $10,000 if a holder files a report – after the initial report and before payment or delivery is made for property that may not be subject to escheat – that is not in substantial compliance with statutory requirements.
- Allow the SCO to waive interest payable if the holder’s failure to report in substantial compliance with specified requirements is due to reasonable cause.
- Invalidate certain finder’s fee agreements and requires some of those agreements to include information about the nature and value of the property, that the SCO is in possession of the property, and the address where the owner can directly claim the property from the SCO.
- Exempt records and information obtained by the SCO pursuant to the Uniform Property Law from disclosure under California Public Records Act, including financial records obtained during examinations, records related to statements of personal worth or personal financial data and personal information.
- Under the new rules passed by AB 466, California income tax filers will be required to answer whether their business entity previously filed an unclaimed property holder remit report with the SCO, and if so, when the last report was filed and the remitted amount. This will apply to in-state businesses, as well as out-of-state businesses that maintain income tax nexus in California. The Franchise Tax Board may share the taxpayer’s answers, entity status, revenue range, and other information with the SCO. As a result, the SCO may then identify companies for audit that are not in unclaimed property compliance. See BDO's January 2022 Alert for further information on this law change.
- It is unclear if holders that have previously filed California unclaimed property returns may be eligible for the California VCP. AB 2280 states: “A holder that has not reported unclaimed property in accordance with Section 1530 may request to enroll in the program using a form prescribed by the Controller.” BDO will continue to monitor this issue for additional developments in this area as the bill seems to provide all holders the ability to enroll in the VCP unless they specifically meet the stated ineligibility provisions.
- Businesses identified for audit may be referred to third-party contract auditing firms that typically have relationships with most of the other states. As such, an initial California unclaimed property audit could easily become a 20-30 multistate audit, commonly referred to as “piggy-back audits.”
- The SCO estimates that only 2% of California businesses properly report unclaimed property each year. As of 2020, approximately 1.3 million businesses that file taxes with the Franchise Tax Board are estimated to have unclaimed property to report but have failed to submit an unclaimed property report to the Controller. The state has increased its focus on improving holder compliance among California taxpayers, so California businesses should expect to see increased audit activity and/or additional inquiries from the SCO. Be prepared! Review BDO’s California Unclaimed Property Checklist.
- Know your exposure. Businesses should be prepared to take advantage of the VCP and comply with the new income tax reporting laws. As part of this process, income tax statements may be warranted as attachments to the California income tax returns.
- Feasibility review: Consider conducting a truncated review of unclaimed property obligations that follows traditional testing methodologies. These reviews arm businesses with a low-to-high range of potential escheat exposures by property type and legal entity. Often, the results of these reviews are used to book ASC 450 accounting reserves and lead to more proactive remediation measures (voluntary disclosures, policy and procedures, compliance, etc.).
 Cal. Civ. Proc. Code §§ 1500 et seq.
 However, if a holder acquired or merged with another entity within the five-year period, it 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.