Did you know that if an individual or business receives $10,000 or more of cash as part of a transaction they have a legal obligation to report the transaction on Form 8300 to the IRS within 15 days? Internal Revenue Code (“IRC”) Section 6050I provides that any person (citizen or resident of the US, domestic partnership, domestic corporation, estate, trust under IRC Section 7701(a)(30)) engaged in a trade or business and receives more than $10,000 in cash in a single transaction or in related transactions must file Form 8300 within 15 days after receiving cash payment. See also the Bank Secrecy Act (31 USC 5331). In addition, a person (further “recipient of cash”) has to give either a written or electronic annual statement to each payer named on Form 8300 by January 31 of the next calendar year regarding a reported cash transaction under IRC section 6050I(e). See also IRC Treas. Reg. 1.6050I-1(f).
Purpose: Tracing Illegal Activity
In IR-2020-168 the Internal Revenue Service (“the IRS”) stated that while many cash transactions are legitimate, payments reported on Form 8300 can help government to trace money from illegal criminal activities such as tax evasion, illegal drug trade, terrorist financing and other conducts of criminal activities.
Cash: What Needs to be Reported
For the purpose of the Form 8300 filing requirements, per IRC Treas. Reg. 1.6050I-1(a)(3)(c) (II) cash includes the coins and currency of the United States and any other foreign country. Cash also may include a cashier’s check, bank draft, traveler’s check, or money order a company receives, if it has a face amount of $10,000 or less received in a designated reporting transaction (defined as a retail sale of consumer durable, a collectible, or a travel or entertainment activity), or any transaction in which the recipient knows that such instrument is being used in an attempt to avoid the reporting of the transaction. Id. Importantly, starting January 1, 2024, cash definition will also include cryptocurrency based on Infrastructure Investment and Jobs Act dated 11/15/2021.
Exceptions for cash reporting: cash does not include personal checks drawn on the account of the writer as well as cashier’s check, bank draft, traveler’s check, or money order with a face amount of more than $10,000. See IRC Publication 1544.
The IRC Treas. Reg. 1.6050I-1 (3) (c) (B) (vii) provides the following examples that illustrate definition of cash.
Example 1.
D, an individual, purchases gold coins from M, a coin dealer, for $13,200. D tenders to M in payment United States currency in the amount of $6,200 and a cashier’s check in the face amount of $7,000 which D had purchased. Because the sale is a designated reporting transaction, the cashier’s check is treated as cash for purposes of IRC Section 6050I. Therefore, because M has received more than $10,000 in cash with respect to the transaction, M must make the report required by section 6050I and this section.
Example 4.
G, an individual, purchases a boat from T, a boat dealer, for $16,500. G pays T with a cashier’s check payable to T in the amount of $16,500. The cashier’s check is not treated as cash because the face amount of the check is more than $10,000. Thus, no report is required to be made by T under section 6050I and this section.
Transactions that trigger filing obligations
Designated reporting transaction is defined as a retail sale (or the receipt of funds by a broker or other intermediary in connection with a retail sale) of consumer durable, a collectible, or a travel or entertainment activity under IRC Treas. Reg. 1.6050I-1(c) (III).
With respect to the filing requirements, pursuant to IRC Treas. Reg. 1.6050I-1(3) (b), a mandatory legal filing obligation applies not only to a single transaction of more than $10,000, but also to related transactions and multiple payments (installment payments). Pursuant to Treas. Reg. 1.6050I-1(c)(7)(ii), related transaction is defined as any transaction between a payer (or an agent of the payer) and a recipient of cash that occurs within a 24-hour period. Even of the transaction occurs during a period of more than 24 hours, the transaction is related if the recipient knows or has reason to know that each transaction is one of a series of connected transactions. Id.
Exceptions to the Reporting Requirements
Receipt of cash by certain financial institutions and by certain casinos having gross annual gambling revenue in excess of $1,000,000 are exceptions according to IRC Treas. Reg. 1.6050I-1(d) (2). See also. In addition, if the cash was not received in the course of the recipient’s trade or business, Form 8300 reporting requirements will not apply. Id.
With respect to a foreign cash transaction, generally there is no requirement to report with respect to a cash transaction if the entire transaction occurs outside the United States. See IRC Treas. Reg. 1.6050I-1(d) (4) (I).
The IRC Treas. Reg. 1.6050I-d(4)(II) provides the following example of the application of Form 8300 reporting requirements related to a foreign cash transaction:
The transaction does not fall under Form 8300 filing obligations, if W, an individual engaged in the trade or business of selling aircraft, reaches an agreement to sell an airplane to a U.S. citizen living in Mexico, and the agreement, no portion of which is formulated in the United States, calls for a purchase price of $125,000 and requires delivery of and payment for the airplane to be made in Mexico. Upon delivery of the airplane in Mexico, W receives $125,000 in cash, W is not required to report under IRC Section 6050I. If, however, any part of the agreement to sell had been formulated in the United States, the foreign transaction exception would not apply and W would be required to report the receipt of cash.
The exception to From 8300 reporting requirements will also apply in relation to the transactions in which cash was received by agent, if an agent who receives cash from a principal and uses all of the cash within 15 days in a second cash transaction, and who discloses the name, address, and taxpayer identification number of the principal to the recipient in the second cash transaction.
The IRC Treas. Reg. 1.6050I-1(c)(3)(III) provides the following example of the application of Form 8300 reporting requirements to agent:
The exception to Form 8300 filing requirements apply to D, an agent, if B, the principal, gives D, an attorney, $75,000 in cash to purchase real property on behalf of B, and within 15 days D purchases real property for cash from E, a real estate developer, and discloses to E, B’s name, address, and taxpayer identification number. However, the exception does not apply, if D pays E by means other than cash, or effects the purchase more than 15 days following receipt of the cash from B, or fails to disclose B’s name, address, and taxpayer identification number (assuming D does not know that E already has B’s address and taxpayer identification number), or purchases the property from a person whose sale of the property is not in the course of that person’s trade or business.
IRM 4.26.10.6. (1) (2) clarifies that IRC Section 6050I does not require governmental units to file Form 8300 except for the specific requirements for criminal court clerks.
In addition, with respect to designated reporting transaction, proceeds received from certain loans, installment sales and down payment plans are not considered cash under IRC Treas. Reg. 1.6050I-1(c) (1) (iv- vi), therefore Form 8300 filing requirements do not apply.
Penalties: Civil and Criminal
Generally, a recipient of cash may be subject to civil and criminal penalties for failure to file Form 8300, and also for failure to provide a written annual statement to each customer named on Form 8300.
Civil Penalties
The civil penalties are stated in IRC Section 6721 and IRC Section 6722. IRC Section 6721 (a)(2) provides that any failure to file an information return on or before the required filing date as well as any failure to include all of the information required to be included on the return (or in case of inclusion of incorrect information) will result in a civil penalty. Similarly, under IRC Section 6722 (a) (2), failure to file timely information statement to payee and failure to include all required information on the annual statement will lead to a civil penalty.
The IRS lists penalties and annual adjustments on its website. For 2021 tax year, the penalty for negligent failure to timely file, to include all required information or to include correct information is $280 per return, not to exceed $3,392,000. If a cash recipient’s an annual gross receipts are not more than $5,000,000, the ceiling is $1,130,500, and the penalty applies to each return. See IRC Section 6721(d) and IRC Section 6722(d). If any negligent failure to under IRC Section 6721 (a) (2) and IRC Section 6722 (a) (2) is corrected on or before the 30th day after the required filing date, the penalty is reduced to $50 in lieu of $280 per return, and the maximum amount imposed is up to $565,000 (up to $197,500 for cash recipients with annual gross receipts of not more than $5,000,000). See IRC Section 6721 (b)(1), IRC Section 6722 (b) (1), IRC Section 6721 (d), IRC section 6722 (d).
If it is determined that the non-compliance was due to intentional disregard of IRS rules, the civil penalty will be the higher of $28,260 or the amount of cash received in the subject transaction, not to exceed $113,000 under IRC Section 6721 (e) (2). Intentional disregard of furnishing of statements to customers will result in the penalty of $560 per failure or, if greater, 10 percent of the aggregate amounts of the items required to be reported correctly. See IRC Section 6722 (e)(2)(A).
Criminal Penalties
A recipient of cash may be fined up to $500,000 (in case of corporation) or sentenced to up to five years in prison, or both, plus the cost of prosecution for willful failure to file Form 8300 or willful failure to include complete and correct information on Form 8300. See IRC Section 7203 and IRC Section 7206 (a). In addition, criminal penalties may apply to any person who attempts to interfere with or prevent the company from filing a correct Form 8300 (for example, structure of transaction in a way that it seems unnecessary to file Form 8300). According to IRC Section 6050I(f)(2), the rules of IRC Section 6721 will apply to penalty for structuring the transactions described above.