Should You File a VDA for Your AUP?

by Heather Vanderborg 8. May 2013 16:38

 

What, Who, Where, Why and When? Following are answers to some basic questions about Abandoned and Unclaimed Property (AUP), an issue that many companies don’t know quite what to do with (hint: it is NOT a tax).

What: is a Voluntary Disclosure Agreement?

Companies need to understand the advantages of being proactive and filing a Voluntary Disclosure Agreement (VDA) for their AUP, because experience shows that you don’t want to wait to be audited!

 In short, a VDA is a piece of paper that represents a contractual agreement once signed.  It asserts that a company is entering into a review process, compiling and examining all potentially outstanding liabilities that are due to others (e.g. Vendors, Customers, former employees, etc).  The company will then report its findings, all truly past due liabilities, and agrees to be compliant with its yearly filings going forward. 

Who: should be filing? 

It is important to identify whether your company is a good candidate for the VDA process. Prime candidates are those Companies who have no previous filing history and who have not been under audit.  It’s also important to keep in mind that newly formed companies may not have dormant property, so the process is for those that have been in business since the early-mid 1990’s. 

Where: should companies file?

A company should first and foremost file in their State of Incorporation.  A company’s State of Incorporation is the beneficiary of the extrapolated amount calculated when actual information is not available.  After applying addressable information and quantifying a true liability on a state by state basis, the company may identify a threshold amount that it would use to classify additional states where it may be beneficial to file a VDA, in order to avoid penalties and interest on a “first time filing”.

Why: should a company file a VDA?

There are benefits when it comes to being proactive and filing a VDA.  In addition to avoiding penalties and interest, the company may limit the look-back period  up to 10 report years, vs. up to more than 30! For example, an audit in Delaware could go look back to 1981, while a VDA in that state will limit the review to 1991.  Other benefits  include less of a resource strain, less stress than being under audit, and the ability to research and review at the company’s pace (within the time period alotted).

When: should a company file?

Because audit activity from all of the top states of incorporation is increasing in frequency, there is no better time than the present  to file a VDA – once a company understands its liability. If a company doesn’t know its AUP liability, we highly recommend that you consider retaining a qualified third-party consultant such as UP Advocates, Urish Popeck’s affiliated AUP consulting group.  UP Advocates is experienced with assisting companies with every aspect of the AUP process.

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