Litigation News – July 2014
July 28, 2014
Failure to Report Cash Payment Over $10,000 May Lead to Government Penalties
For about 25 years, under federal law, businesses have had an obligation to properly handle and report cash payments exceeding $10,000. Some confusion still exists, however, concerning to what types of businesses the reporting requirement applies; and whether the federal law requires reporting only by financial institutions, or by all business entities. Failure to follow the exact reporting requirements, as well as failing to file a complete report in a timely manner, may result in the government imposing a minimum penalty of $25,000 on a per transaction basis. What is the nature of this federal reporting law, what does it require, and to whom does it apply?
Recently, compliance questions once again came to light where a business received $18,000 in cash to settle an account receivable. The business questioned whether it needed to file a Form 8300 (a cash reporting form) pursuant to the federal reporting law for receiving a cash payment of more than $10,000. While the business was aware that the federal law requires that financial institutions file these cash reporting forms, the business questioned whether similar rules apply to cash payments received by a private, non-financial company.
Under Section 6050I of the Internal Revenue Code, 26 U.S.C. §6050I, the IRS requires that business entities report certain information to the IRS (and the Financial Crimes Enforcement Network (FinCEN)), where that business receives a cash payment in an amount of more than $10,000 ($10,000.01 or higher). The entity must report this information to the IRS on an IRS/FinCEN Form 8300.
Who Must File and What Cash Transactions Apply
Each person (individual or company) engaged in a trade or business that, in the course of that trade or business, receives more than $10,000 in cash in one transaction (or in two or more related transactions), must file a Form 8300. The law defines “cash” not only as U.S. and foreign coin and currency received in any transaction, but also as any cashier’s check, money order, bank draft, or traveler’s check having a face amount of $10,000 or less, which combined with cash totals more than $10,000. However, “cash” does not include a check drawn on a paying customer’s own account, such as a personal check, regardless of the amount. A single transaction may not be broken into multiple transactions to avoid reporting. Any action or attempt by the business or its staff to structure the payments to avoid Form 8300 reporting could subject that business to large monetary fines, and even criminal penalties.
The law requires reporting where the business receives cash in conjunction with a retail sale, which is any sale (to an end user or for resale) made in the course of a trade or business, if that trade or business principally consists of making sales to an ultimate purchaser of a consumer durable, a collectible, or a travel or entertainment activity. This activity includes the purchase of property or services, or the payment of debt. The law requires that the person (Social Security number) or company (taxpayer identification number) paying by cash must provide a proper identification number. Again, the receiving business may be subject to penalties for failing to obtain a complete and proper identification number from the customer. As a signification exception to the reporting law, a business need not report the transaction where the transaction is not made in the course of that entity’s trade or business.
Required Filings: Filing of Form 8300 and Year End Notice to Customer
The law requires that the business file a Form 8300 by the 15th day after the date that the business received the cash. While the law does not require the business to inform the customer at the time of receiving the cash payment that it will be filing a Form 8300, the business must provide a written or electronic statement to the person listed on the Form 8300 on or before January 31 of the year following the calendar year in which the customer made the cash payment. The statement must show the name, telephone number, and address for the business, the total amount of reportable cash received, and that the IRS received that information. The business should take care to retain a copy of this notice statement as part of the business records.
Failing to strictly comply with the reporting law, including but not limited to failing to file a correct and complete Form 8300 in a timely manner, may subject the business entity penalties. The minimum financial penalty is $25,000 per transaction. However, especially if the entity’s noncompliance is due to an intentional or willful disregard of the Form 8300 cash reporting requirements, the government may seek criminal penalties.
Summary – Account Receivable Cash Payment is a Reportable Form 8300 Activity
Here, in our example, because the business in question, in the course of its trade or business, received $18,000 in cash for payment of an account receivable related to the sale of a service or activity, federal law requires that the business file a Form 8300 with the IRS within 15 days of receipt of the payment from the customer.
A business needs to be careful in handling cash payments exceeding $10,000, as federal law requires such reporting not only of financial institutions, but of all businesses. Too frequently, businesses fail to follow the exact reporting requirements regarding amounts over $10,000, as well as failing to file a report in a timely manner, resulting in monetary fines starting at $25,000 per transaction. Therefore, it is critical that all businesses take steps to ensure that it and its staff understand the federal reporting requirements, know how to address, handle, and report such cash transactions, and react appropriately to any government inquiry. The attorneys at McNees Wallace and Nurick have significant experience assisting businesses with federal reporting compliance efforts, internal audits, and external investigations.
© 2014 McNees Wallace & Nurick LLC
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