What Is Cash?
The obvious first question that comes to mind is what is considered “cash” for purposes of Form 8300? Cash is defined in Treasury Regulations section 1.6050I-1(c)(1) as:
- U.S. and foreign coin and currency received in any transaction; or
- Monetary instruments, such as cashier’s check, money order, bank draft, or traveler’s check having a face amount of $10,000 or less that is received in a designated reporting transaction (defined below), or that is received in any transaction in which the recipient knows that the instrument is being used in an attempt to avoid the reporting of the transaction under either section 6050I or 31 USC section 5331.
- Cash does not include a check drawn on the payer’s own account, such as a personal check [Treasury Regulations section 1.6050I–1(c)(1)(ii)].
The rules for reporting monetary instruments received in a “designated reporting transaction” can be complex. A “designated reporting transaction” is “a retail sale … of a consumer durable, a collectible, or a travel or entertainment activity” [Treasury Regulations section 1.6050I-1(c)(iii)]. A consumer durable is defined as an “item of tangible personal property of a type that, under ordinary usage, can reasonably be expected to remain useful for at least 1 year, and that has a sales price of more than $10,000” [Treasury Regulations section 1.6050I-(c)(2)].
There are several exceptions. A monetary instrument will not be treated as cash if it constitutes proceeds of a loan from a bank, was received in payment of certain promissory notes or as part of an installment sale or down payment plan in the ordinary course of the recipient’s trade or business, subject to certain additional requirements [Treasury Regulations section 1.6050I-1(c)(iv-vi); Internal Revenue Manual (IRM) 4.26.10.5.3].
What Is a Trade or Business?
The term “trade or business” has the same meaning as in IRC section 162. Thus, taxpayers who sell personal property outside of any trade or business do not have a reporting requirement [Treasury Regulations section 1.6050I-1(d)(3)]. For example, an individual who sells a boat that had been owned for personal use for more than $10,000 in cash does not have to file a Form 8300.
The categories of transactions that must be reported are extremely broad. “Transaction” is defined to include:
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 cash for other cash; the establishment or maintenance of or contribution to a custodial, trust, or escrow arrangement; a payment of a preexisting debt; a conversion of cash to a negotiable instrument; a reimbursement for expenses paid; or the making or repayment of a loan.
[Treasury Regulations section 1.6050I-1(c)(7)(i)]
A transaction may not be divided into multiple transactions in order to avoid reporting. “Related transactions” are any transactions conducted between a payer (or its agent) and a recipient of cash in a 24-hour period, or transactions conducted over a longer period if the recipient knows or has reason to know that each transaction is one of a series of connected transactions [Treasury Regulations section 1.6050I-1(c)(7)(ii)].
The Form 8300 requirements apply not just to the direct seller or service provider, but the person who acts on behalf of another as an agent as well. An agent who receives cash from a principal and uses it within 15 days in a second cash transaction is not required to report initial receipt of the cash if the agent discloses the name, address, and taxpayer identification number (TIN) of the principal to the recipient of the second reportable cash transaction; the recipient in the second transaction is required to file Form 8300 [Treasury Regulations section 6050I-1(a)(3)]. The Form 8300 requirements also apply in other situations where cash is received on account of another, such as a business that collects delinquent accounts receivables for other businesses. [Treasury Regulations section 6050I-1(a)(2)].
In addition, the IRS encourages businesses to file Forms 8300 to report “suspicious transactions,” transactions in which it appears that a person is attempting to cause Form 8300 not to be filed, or to file a false or incomplete form (IRM 4.26.10.7.1). There are some exceptions to these requirements. To avoid duplicate reporting, financial institutions that are required to file Currency Transaction Reports (CTR) do not have to file Form 8300 [Treasury Regulations section 1.6050I-1(d)(1)]. There also is no requirement to report a cash transaction if the entire transaction occurs outside of the United States [Treasury Regulations section 6050I-1(d)(4)].
Preparing and Filing Form 8300
Under the authority of IRC section 6050I, the IRS developed Form 8300 (https://www.irs.gov/pub/irs-pdf/f8300.pdf). At the top of the form, there is a box to check if the Form 8300 is amending a prior form or reporting a suspicious transaction. It may be used to voluntarily report suspicious transactions under $10,000, as well as transactions over $10,000 that are required to be reported (IRM 4.26.10.7).
Part I asks for the “Identity of Individual From Whom the Cash Was Received,” including the name, TIN, address, date of birth, and occupation of all payees. The filer must request an identifying document from the individual who paid over the cash, such as a passport, driver’s license, or alien registration card, and report that information in Part I.
Part II asks for information about the “Person on Whose Behalf This Transaction Was Conducted.” The filer must provide the individual’s name, or the organization’s name, TIN or employer identification number (EIN), the “doing business as” name, if applicable, and the business address. If the recipient knows or has reason to know that the person from whom the cash was acting as an agent for another person, the filer must include information about that person as well.
Part III asks for the “Description of Transaction and Method of Payment.” This includes the date of the receipt of the cash, the total amount, whether it was received in more than one payment, and the total price for the goods or services, if different from the amount of the cash received. The filer must also break out the payment between types of cash and monetary instruments, such as cashier’s checks and money orders. The country of issuance for any foreign currency and the issuer’s name and serial number for any monetary instruments must be stated. The filer must indicate the amount in $100 bills or larger dollar amounts. In addition, the filer must identify the type of transaction from one of nine categories, including personal property, real property, personal services, business services, and the exchange of cash, or mark “other” and provide a description.
Part IV asks for information about the business that received the cash, including the TIN, name, address, and nature of the business. There is also a space for comments about the information reported in Parts I–IV. If the filer cannot complete the Form 8300, the filer should explain in the comment section (IRM 4.26.10.7.1; 4.26.10.10.3.1).
The Form 8300 must be signed under penalties of perjury by an individual who has been authorized to do so for the business that received the cash. A business must file Form 8300 within 15 days after the cash was received. If a business receives later payments toward a single transaction or two or more related transactions, the business must file the Form 8300 when the total amount paid exceeds $10,000. Each time payments aggregate more than $10,000, the business must file another Form 8300.
The IRS is encouraging businesses to file Forms 8300 electronically through the BSA E-Filing System (see IR-2019-20, https://bit.ly/3gT4llf). Form 8300 filers must retain copies of the forms for five years [Treasury Regulations section 1.6050I-1(e)(3)(iii)].
Furnishing the Annual Statement
In addition to the requirement to file the Form 8300 itself, IRC section 6050I(e) requires any person who files a Form 8300 to furnish a single, annual written statement to each person identified on Form 8300 by January 31 of the next calendar year [Treasury Regulations section 1.6050I-1(f)]. The statement must contain the name, address, and telephone number of the contact for the business, the aggregate amount of reportable cash received from the person during the calendar year, and a statement that the filer reported this information to the IRS. If the business only filed one Form 8300 during the year for a particular payor, the filer may send a copy of the Form 8300 to satisfy the annual statement requirement. However, merely providing a copy of the Form 8300 to the payor at the time of the transaction does not meet the requirement (IRM 4.26.10.3; 4.26.10.7.2). The one exception to the annual statement requirement is that when the business voluntarily files a Form 8300 to report a suspicious transaction, it should not send the statement to that payor.
Civil Penalties
The failure to comply with these provisions can result in substantial penalties. There are two separate bases for penalties related to Form 8300: 1) failure to include all of the required information; and 2) failure to timely file the form [IRC section 6721(a)(2)]. Similarly, there are two bases for penalties for failure to furnish statements to customers: 1) failure to include all required information; and 2) failure to timely furnish the statement [IRC section 6722(a)(2)].
Penalties Not Due to Intentional Disregard
The penalty under both provisions is $250 per violation for violations not due to intentional disregard of the reporting requirements [IRC sections 6721(a)(1), 6722(a)(1)]. There is no particular intent required, although there is a reasonable cause defense (discussed below). There are annual aggregate limitations on the maximum amount of penalties that can be imposed, depending upon the business’s annual gross receipts. Both penalties are reduced if the business corrects the noncompliance within 30 days. These penalty rates and ceilings are adjusted for inflation (IRM 4.26.10.10.1).
The Exhibit summarizes the current penalty regime for violations not due to intentional disregard.
Exhibit
Current Penalty Regime
Penalties for Intentional Disregard
If the failure to comply was the result of intentional disregard of the filing requirements or annual statement requirements, the penalty is substantially larger. For intentional disregard of the rules requiring the filing of Form 8300, the penalty is the greater of $25,000 or the amount of cash received in such transaction, not to exceed $100,000 [IRC section 6721(e)(2)]. For failure to furnish customer statements, the penalty is the greater of $500 per failure, or 10% of the aggregate amount of the items to be reported. There is no aggregate annual limitation for intentional disregard penalties [IRC sections 6721(e); 6722(e)].
A failure is due to intentional disregard if it is “knowing or willful” [Treasury Regulations section 301.6721(f)(2)]; Denbo v. United States, 988 F.2d 1029, 1034-35 (10th Cir. 1993), defining “willful” conduct under section 6672 as a “voluntary, conscious and intentional decision”]. This determination is based on all of the facts and circumstances [Purser Truck Sales v. United States, 710 F. Supp. 2d 1334, 1339 (Md. Ga. 2008)].
These facts and circumstances include, but are not limited to the following:
- Whether the failure to file timely or the failure to include correct information is part of a pattern of conduct by the person who filed the return of repeatedly failing to file timely or repeatedly failing to include correct information;
- Whether correction was promptly made upon discovery of the failure;
- Whether the filer corrects a failure to file or a failure to include correct information within 30 days after the date of any written request from the Internal Revenue Service to file or to correct; and
- Whether the amount of the information reporting penalties is less than the cost of complying with the requirement to file timely or to include correct information on an information return. [Treasury Regulations section 301.6721-1(f)(3)].
There are few reported cases involving these penalties, but they indicate that there must be something more than just poor recordkeeping practices or ignorance of the rules for the IRS to impose heightened penalties. Because of the “extreme harshness” of the penalties involved, intentional disregard is “a high standard of culpability, requiring much more than merely negligent or reckless disregard” [Purser Truck Sales at 1339].
A clear case of intentional disregard is Bickham Lincoln-Mercury v. United States [168 F.3d 790 (5th Cir. 1999)], in which the taxpayer had previously pled guilty to criminal charges for failure to file Form 8300, and later withheld information from the IRS in a deliberate effort to assist a customer who wanted to conceal the amount of cash paid for a car. On the other side of the spectrum is Kruse, Inc. v. United States [213 F. Supp. 2d 939, 944 (N.D. Ind. 2002)], in which a jury found that the IRS had improperly imposed the intentional failure to file penalties. There was evidence that the taxpayer honestly believed that auction businesses were exempt from the Form 8300 requirements. This belief was wrong, but because the taxpayer genuinely held it, he did not act willfully. The taxpayer’s defense was bolstered by the fact that he did not make any attempt to conceal his cash receipts but kept accurate books and records and deposited all cash receipts in his bank account.
In Tysinger Motor Co. [428 F. Supp. 2d 480 (E.D. Va. 2006)], the line between intentional disregard and negligence is less clear. The IRS conducted a compliance review and found that the family-owned automobile dealership had failed to report several transactions involving cash in excess of $10,000. The IRS conducted a second review, in which it again found that the company had been inconsistent with its Form 8300 compliance. After the second review, the chief financial officer acknowledged that he was aware of the Form 8300 requirements and of the penalties for failure to file, and the company implemented a system to identify cash transactions. The system did not work, however, and during a third compliance review, the IRS found that the company had failed to file Forms 8300 for four of the eight reportable transactions during the period under review. The company prevailed on its defense that it did not intentionally disregard its obligation but that the failures to file were simply mistakes, the result of sloppy recordkeeping and an inadequate compliance system:
Sloppiness is not the same as willfulness, particularly in a case such as this one where the business had extraordinarily few cash transactions. Less than one-half of one percent (8 out of 3000) of Tysinger’s sales during 1999 and 2000 involved reportable amounts of cash. It is not surprising that the employees on the front lines failed to cross every “t” and dot every “i” on those rare occasions when down payments were made with cash.
(Tysinger at 46)
Even if a taxpayer is aware of the filing requirements, it should not be subject to intentional disregard penalties if there are other facts showing that the noncompliance was unintentional.
Tysinger shows that even if a taxpayer is aware of the filing requirements, it should not be subject to intentional disregard penalties if there are other facts showing that the noncompliance was unintentional.
Penalty Defenses: Inconsequential Errors or Omissions
There are certain errors or omissions that will not subject the filer to penalties. An omission on Form 8300 is not considered a failure to include correct information if it is an “inconsequential error or omission.” Treasury Regulations section 301.6721-1(c)(1). An “inconsequential error or omission” is defined as “any failure that does not prevent or hinder the Internal Revenue Service from processing the return, from correlating the information required to be shown on the return with the information shown on the payee’s tax return, or from otherwise putting the return to its intended use.” There are, however, identify several errors that will never be treated as inconsequential:
- A TIN;
- A surname of a payee (i.e., the person required to be furnished a copy of the information set forth on an information return); and
- Any monetary amounts. [Treasury Regulations section 301.6721-1(c)(2)] There are similar rules for incomplete annual statements [Treasury Regulations section 301.6722(b)].
Reasonable Cause
IRC section 6724 states that: “no penalty shall be imposed … with respect to any failure if it is shown that such failure is due to reasonable cause and not to willful neglect.” The taxpayer has the burden of proving that: “(1) significant mitigating factors excuse the failure to file; or (2) the failure to file arose from events beyond the taxpayer’s control” (Treasury Regulations section 301.6724-1).
Examples of events beyond the taxpayer’s control include the destruction of records or actions of others, including a customer’s refusal to reveal its TIN, although there are additional special rules that apply in those situations [Treasury Regulations section 301.6724-1(c); IRM 4.26.10.10.3].
The IRS interprets the mitigation requirement as “rectifying the failure as promptly as possible once the impediment was removed or the taxpayer discovered the failure. Ordinarily, a rectification is considered prompt if made within 30 days after the date the impediment is removed, or the failure is discovered, or on the earliest date following a regular submission of corrections” (IRM 4.26.10.10.3). Significant mitigation factors include whether the filer had previously been required to file Forms 8300, and whether the filer otherwise has a good compliance history (IRM 20.1.7.12.1).
In addition, the taxpayer must also prove that it acted in a “responsible manner” both before and after the failure occurred (IRM 20.1.7.12.1). This entails the following:
- That the filer exercised reasonable care, which is that standard of care that a reasonably prudent person would use under the circumstances in the course of its business in determining its filing obligations, and
- That the filer undertook significant steps to avoid or mitigate the failure. [Treasury Regulations section 301.6724-1(d)]
As noted above, special rules apply to TIN issues. In general, a filer seeking a waiver for reasonable cause for a failure resulting from a missing or an incorrect TIN will be deemed to have acted in a responsible manner only if the filer satisfies the requirements of Treasury Regulations section 301.6724-1(e), described below.
If the TIN is missing, the filer must make an initial solicitation, and may also be required to make an annual solicitation. The filer must make an initial solicitation requesting the TIN at the time of the transaction [Treasury Regulations section 301.6724-1(e)]. This solicitation may be made orally or in writing, such as on an account opening document [IRM 4.26.10.10.3.1]. If the filer makes the initial solicitation but the customer still does not provide the TIN, the business must make the first annual solicitation on or before December 31 of the year in which the transaction occurred (for transactions occurring before December) or January 31 of the following year (for transactions occurring in December). Where the TIN is incorrect, the filer must solicit the correct TIN at the time of the transaction. The filer only has to make another solicitation if the IRS (or, in some cases, a broker) notifies the filer that the TIN is incorrect. [Treasury Regulations section 301.6724-1(f)(1)(i)]. If the filer is so notified, it must make the first annual solicitation on or before December 31 of the year of the notification, or by January 31 of the following year if notified in the preceding December (IRM 4.26.10.10.3.2).
The one avenue for Tax Court review exists when a taxpayer did not receive an opprtunity for Appeals reviews and the IRS has issued a notice of intent to levy.
The business does not have to make a second annual solicitation if there are not reportable payments for that customer during the year. The annual solicitation must include a request for the TIN and a warning to the customer that he or she is subject to a $50 penalty under IRC section 6723 for failure to provide the TIN [Treasury Regulations section 301.6724-1(e)(2)]. The filer must maintain contemporaneous records showing the solicitation and provide them to the IRS upon request. If the business satisfies these requirements, it will be deemed to have acted in a responsible manner even though the TIN was missing or incorrect [Treasury Regulations section 301.6724-1(k)(i)].
Statutes of Limitations
As noted above, the Form 8300 requirements are contained in both the IRC and BSA. Examiners generally conduct Form 8300 examinations under the tax code, but for entities that are required to have an anti-money laundering compliance program, such as insurance companies or dealers in jewels, the Form 8300 examination is conducted under the BSA (IRM 4.26.10.11; 4.26.11.12.9).
For penalties assessed under the IRC, the statute of limitations is the same as it is for other tax returns, that is, three years from the filing date or unlimited if the taxpayer never filed the form [IRC sections 6501, 6724(b)]. The IRS’s position is that there is no statute of limitations for penalties for failure to file the annual statement (IRM 4.26.10.11). For penalties assessed under the BSA, the statute of limitations is six years from the date of the transaction [31 USC section 5321(b)(1)]. Even if the business does not file the Form 8300, the statute still runs.
Penalties for Structuring
Attempting to avoid the Form 8300 requirements through structuring is also prohibited. IRC section 6050I(f)(1)(C) provides that no person shall “structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more trades or businesses.”
Similarly, 31 USC section 5324(b) provides that no person shall, for the purpose of evading the Form 8300 reporting requirements “cause or attempt to cause a nonfinancial trade or business to fail to file or to file a return with a material omission or misstatement, or structure.” As applied, the two structuring prohibitions reach the same result, except that the BSA provisions only apply if the filer is not required to file a CTR (IRM 4.26.10.10.5.1).
Under IRC section 6050I(f)(2), the penalty for a structuring violation is the same as for failure to file a timely and correct Form 8300 under IRC section 6721. Under the BSA, the penalty may be up to the amount involved in the transaction [31 USC section 5321(a)(4)].
Challenging Form 8300 and Related Penalties
During an examination, the taxpayer should have an opportunity to raise defenses to penalties. The taxpayer, however, must make a specific request for waiver of penalties on the basis of reasonable cause (IRM 20.1.7.12.1). If the IRS assesses penalties, the taxpayer can protest the assessment with the IRS Independent Office of Appeals. Form 8300 penalties are “assessable penalties,” meaning that they are assessed on notice and demand, and they are not subject to the deficiency procedures, meaning that the taxpayer cannot petition for review in the Tax Court (IRC section 6671). The IRS provides for pre-assessment Appeals review only of penalties for intentional disregard of the requirements (IRM 4.26.11.11.2). For all other Form 8300 and related penalties, there is no pre-assessment Appeals review. Rather, post-assessment, the taxpayer can request abatement in writing, and if that request is denied, the taxpayer will have an opportunity for Appeals review (IRM 20.1.1.4.1.2).
If the taxpayer does not get relief through these procedures (with one exception explained below), the remedy is to pay the penalties and file an administrative claim for refund, and, if that is denied, file a refund action in federal district court or the Court of Claims [IRC section 7422(a), 28 USC section 1346(a)(1)]. Form 8300 penalties are “divisible,” meaning that payment of the penalty associated with a single failure to file is sufficient to file a refund claim and institute a refund suit [Chief Counsel Advice 201315017 (April 12, 2013)]. This is an exception to the general rule that a taxpayer must pay the full assessment before filing a refund suit [Flora v. United States, 362 U.S. 145, 177 (1960)].
The one avenue for Tax Court review exists when a taxpayer did not receive an opportunity for Appeals review and the IRS has issued a notice of intent to levy. The taxpayer can then challenge the penalty through the Collection Due Process (CDP) procedures [IRC section 6330(c)(2) (B); Our Country Home Enterprises, Inc., v. Comm’r, 855 F.3d 773 (7th Cir. 2017)]. If the taxpayer does not prevail during the CDP hearing, the taxpayer can seek review of that decision in the Tax Court [Callahan v. Comm’r, 130 T.C. 44, 48 (2008)].
The IRS provides Appeals rights as a matter of course, and thus it is rare that a taxpayer can challenge Form 8300 penalties in the Tax Court. Rather, the usual course is for the taxpayer to pay a divisible portion of the penalties and bring a refund action.
Criminal Penalties for Form 8300 Noncompliance
The above discussion focuses on civil penalties, but it is important to note that taxpayers who flout these requirements can also be prosecuted if the government is able to prove beyond a reasonable doubt that the taxpayer acted willfully. Criminal charges for failure to file Forms 8300 and furnish statement and structuring are brought under IRC section 7203 (Willful failure to file return, supply information, or pay tax), which is a felony punishable by a fine of up to $25,000 ($100,000 in the case of a corporation) and up to five years of imprisonment. Filing a false Form 8300 is prosecuted under IRC section 7206(1), declarations under penalties of perjury, also a felony. The sentence may include a fine of up to $100,000 ($500,000 in the case of a corporation), and three years of imprisonment [IRC section 7206(1)].
Under 31 USC section 5322(a), the criminal penalties are more severe than under the tax code. A person who willfully violates the Form 8300 filing requirements can be fined up to $250,000 and up to five years of imprisonment. If the Form 8300 noncompliance occurs while the defendant was violating another federal law or as part of an illegal activity involving more than $100,000 in a 12-month period, the sanctions are increased to a fine of up to $500,000 and up to 10 years of imprisonment.
For structuring under the BSA, the criminal penalty is imposed under 31 USC section 5324(d), which provides for a criminal fine and up to five years of imprisonment. If the structuring occurred while the defendant was violating another federal law or as part of an illegal activity involving more than $100,000 in a 12-month period, the term of imprisonment is increased to up to 10 years.
Tips to Avoid and Reduce Penalties
The penalties for noncompliance with the Form 8300 rules can have an extremely detrimental impact on a business. Below are some suggestions for CPAs to assist clients with Form 8300 compliance:
- Communicate and educate. Periodically ask clients whether they receive cash payments in their trade or business and explain the reporting requirements.
- Develop systems and procedures. Assist clients in developing procedures to identify large cash transactions and promptly report them.
- Promptly correct noncompliance. If the correction is made within 30 days, the initial penalty is reduced. Even if the correction is made later, it will be a positive factor in the reasonable cause analysis.
