GALYAN LAW, a P.C.

The Deficit Reduction Act of 1984 included the enactment of IRC Sec. 6050I, which imposed an information-filing obligation for transactions involving cash. In 2001, Congress added Sec. 5331 to the Bank Secrecy Act (BSA) as part of the USA Patriot Act, which imposed similar reporting obligations as IRC Sec. 6050I. 

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The information is to assist in the investigation of criminal, tax and regulatory investigations or proceedings. Both statutes are substantially the same, with a minor exception, and impose the same filing obligations using IRS/FinCEN Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. 

Businesses that operate in a cash environment within the scope of Form 8300 include jewelry stores, bail bondsman, automobile dealerships, pawnbrokers, real estate brokers, insurance companies and the cannabis industry as a whole. FinCEN, the agency charged with collecting the information required under the BSA, periodically issues Geographic Targeting Orders (GTO) imposing additional reporting and recordkeeping requirements covered by the order. 

For example, in 2014 FinCEN issued a GTO to an area of downtown Los Angeles for covered businesses identified in the order. It’s important to be aware of the GTOs applicable to specific areas and industries to ensure compliance with IRS and BSA filing obligations. 

Reporting Requirements
Under both statutes, generally any person who, in the course of their trade or business, receives more than $10,000 in cash or currency in one or more related transaction must file a report using Form 8300. Specific exceptions apply to agents and financial institutions. 

Any person required to submit a Form 8300 must also furnish a single, annual, written statement to each person whose name is set forth in a return (“identified person”) filed with the IRS. The statement required does not need to follow any particular format, but must contain name and address of the person filing the return, the aggregate amount of reportable cash received during the year and statement informing the recipient that information is being reported to the IRS. The statement must be issued to the recipient’s last known address on or before Jan. 31 of the following year.

Reportable Payments
A Reportable Transaction: Form 8300 is required when payments of cash exceed $10,000 in one or more related transactions. “Transaction” means the underlying event precipitating the payer’s transfer of currency to the recipient. In this context, transactions include (but are not limited to) a sale of goods or services; a sale of real property; a sale of intangible property; a rental of real or personal property; an exchange of currency for other currency; the establishment or maintenance of or contribution to a custodial, trust or escrow arrangement; a payment of a preexisting debt; a conversion of currency to a negotiable instrument; a reimbursement for expenses paid; or the making or repayment of a loan. 

The reporting is not limited to a single lump sum transaction of more than $10,000, but includes related transactions and instances of multiple payments.
“Related transactions” are those conducted—in cash—between parties within a 24-hour period, as well as those transactions conducted between parties in cash during a period of more than 24 hours if the recipient knows or has reason to know that each transaction is one of a series of connected transactions. These related transactions include recasting a single transaction exceeding $10,000 into separate transactions for under $10,000 each for the purpose of avoiding the filing requirements. A transaction may not be divided into multiple transactions to avoid reporting. Structuring transactions to evade reporting requirements may subject the individual to criminal and civil penalties to the same degree as the person who fails to file the information return. 

Multiple Payments: Filing obligations arise when the initial payment exceeds $10,000. However, if the initial payment is under $10,000, the recipient must aggregate the initial payment and subsequent payments made within one year of the initial payment until the aggregate amount exceeds $10,000. With subsequent payments, a report must be made each time previously unreported payments made within a 12-month period with respect to a transaction(s), individually or in the aggregate, that exceeds $10,000. After a business files Form 8300, it must start a new count of cash payments received from that buyer.

For example, a business owner receives an initial cash payment of $2,000, and subsequent cash payments of $4,000, $7,000 and $13,000. All payments are received within one year and related to the same transaction. Form 8300 is required when the third payment is received because the combined total has exceeded $10,000. In addition, Form 8300 must be filed for the last payment of $13,000.

Cash Defined: Under the IRC and the BSA, “cash” includes U.S. and foreign currency. It also includes any monetary instrument with a face amount of not more than $10,000 received in a designated reporting transaction or received in any transaction in which the recipient knows that such instrument is being used in an attempt to avoid reporting of the transaction on Form 8300. Monetary instruments include a cashier’s check, bank draft, traveler’s check or money order. However, the monetary instrument does not include a check drawn on the account of the writer. 

There is no duty to file a Form 8300 for monetary instrument with face value in excess of $10,000 because the BSA imposes a duty on financial institutions to file a Currency Transaction Report for transactions of series of transactions involving currency in excess of $10,000

A Designated Reporting Transaction: “Designated reporting transactions” are a retail sale (including through an intermediary) of a consumer durable, a collectible, or a travel or entertainment activity.

The term “consumer durable” means an item of tangible personal property of a type that is suitable for personal consumption or use, has a useful life of at least one year and has a sales price of more than $10,000. “Collectibles” under IRC Sec. 408 includes works of art, rugs or antiques, metals, gems, stamps, coins, alcoholic beverages or any other tangible personal property. The terms “travel” or “entertainment activity” mean an item of travel or entertainment pertaining to a single trip or event where the aggregate sales price of the item, and all other items pertaining to the same trip or event, are sold in the same transaction (or related transactions) and exceeds $10,000.

Suspicious Transactions
Form 8300 is required when a business receives a cash equivalent instrument for payment in any transaction, and the recipient believes the payor is trying to avoid reporting the transaction. Since structuring payments to evade reporting is a violation on its own, the recipient must consider the surrounding facts to determine whether structuring has occurred requiring the filing of a Form 8300.

In addition, in certain situations a business may be suspicious about a transaction and thus may report the transaction on Form 8300 and check the “suspicious transaction” box (box 1b) on the top line of Form 8300.

IRS Form 8300 Reference Guide states that a transaction is suspicious if it appears that a person is trying to prevent a business from filing Form 8300 or is trying to cause a business to file a false or incomplete Form 8300, or there’s a sign of possible illegal activity. For example, receipt of cash or cash equivalent in the cannabis related transaction may result in “suspicious transaction” designated Form 8300 because under federal law the trafficking of cannabis is an illegal activity. 

Civil and criminal penalties apply to the payor who causes a business to fail to file a Form 8300 or causes the filing of a material omission or misstatement to fact. 

Penalties
Criminal penalties for the willful failure to file Form 8300 include a maximum fine of $100,000 for a corporation—plus the costs of prosecution. Willful failure is given the same definition as other criminal tax context. In addition, criminal penalties apply to any person who willfully files a false Form 8300 with regard to a material matter. The penalty for false reporting is a fine of up to $100,000 ($500,000 in the case of a corporation) or imprisonment of up to three years, plus the cost of prosecution. 

Civil penalties for failure to file a timely and correct Form 8300 start on the low end of $100 per return negligence penalty and can rise to a level of intentional disregard penalty. 

Civil penalties for “intentional disregard of the filing requirement” can lead to a civil penalty which is the greater of either $25,000 or the amount of cash received in the unreported transaction, not to exceed $100,000, for each failure to file the required return. Additional penalties apply for failure to timely furnish information to persons that are required to be identified on Form 8300. Civil penalties under Sec. 6721 and Sec. 6722 are adjusted for inflation.

Conclusion
Form 8300 plays an integral role in gathering financial information for investigation of cases including money laundering, unreported income and illegal activity. It’s been noted that Form 8300 filings are common issue in IRS exams of cannabis related taxpayers. Clients operating in cash environments must be advised and educated on the filing obligations related to the receipt of cash. In addition, where facts indicate willful failure, clients must speak to an attorney to preserve the attorney-client privilege in criminal context. Some relief may be available to those taxpayers who come forward voluntarily to submit unfiled information returns and/or unreported income.