The Form 8300 Filing Requirement and Associated Penalties

In Bank Secrecy Act, White Collar by Zach Smith1 Comment

By Zach Smith

The IRS uses Form 8300 to detect individuals or entities that attempt to evade taxes as well as to detect money laundering and underlying criminal activities. Form 8300 requires a person that receives more than $10,000 in cash during the course of its trade or business report the receipt of such cash to the IRS and send a written statement notifying the customer that the transaction was reported. Form 8300 is a component of the monetary and currency reporting regime under the Bank Secrecy Act and the Internal Revenue Code, and plays an integral role in the country’s anti-money laundering efforts.

Here is the rule in more detail: if a person receives a cash payment in excess of $10,000 in one transaction in the course of a trade or business, then, pursuant to 26 U.S.C. § 6050I and 31 U.S.C. § 5331, that person is required to file a Form 8300 with the IRS within 15 days of the cash receipt. A person must also file Form 8300 if the person receives two or more related payments totaling over $10,000, even if no payment, standing alone, exceeds $10,000. A written statement must also be provided to each person identified on Form 8300 by January 31 of the following calendar year. The filer must maintain copies of both Form 8300 and the written statement for five years.

For Form 8300 purposes, a “person” is defined as any individual, trust, estate, partnership, association, company, or corporation. It is important to note that a person who acts as an agent and holds cash for more than 15 days for the principal is required to report the cash receipt on a Form 8300. A “transaction” subject to Form 8300 reporting includes, but is not limited to, the following:

  • 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, maintenance of, or contribution to an escrow, trust, or custodial agreement;
  • Payment of a pre-existing debt;
  • Conversion of currency to a negotiable instrument;
  • Reimbursement for expenses paid; and
  • The making or repayment of a loan.

For Form 8300 purposes, “cash” includes any U.S. coin and currency as well as foreign currency. That definition, however, is expanded in the Form 8300 context. “Cash” also includes a cashier’s check, bank draft, traveler’s check, or money order having a face amount of $10,000 or less if the instrument is used in a “Designated Reporting Transaction” or the person knows or has reason to know that the customer is attempting to avoid the filing of a Form 8300. A “Designated Reporting Transaction” is defined as any one of the following: a retail sale, a consumer durable, a collectible, or a travel or entertainment activity. Personal checks drawn on the writer’s account as well as a cashier’s check, bank draft, traveler’s check, or money order with a face value of more than $10,000 are not considered “cash” for Form 8300 purposes.

There are two important exceptions to the requirement to file a Form 8300. First, financial institutions are not required file a Form 8300 because such entities are required to file a Currency Transaction Report (“CTR”) under other provisions of the Bank Secrecy Act and its regulations. Second, transactions that occur entirely outside the United States and its territories do not require the filing of a Form 8300.

Also of note, governmental entities generally do not need to file Form 8300 except for one particular situation. A clerk of a criminal court must file a Form 8300 when cash bail of more than $10,000 is paid for an individual that was arrested for: any federal offense involving a controlled substance, racketeering, money laundering, and any substantially similar state offenses.

One major pitfall that frequently comes up in this context is “structuring.” It is a crime to “structure” one’s payments to avoid making a single exchange of cash of more than $10,000. Structuring occurs when a customer makes multiple payments in an attempt to not pay more than $10,000 at one time in order to avoid filing a Form 8300. If a person structures payments, they may be liable for both civil and criminal penalties, including up to 10 years imprisonment and severe monetary penalties.

Civil and criminal penalties may be also assessed for failing to file Form 8300. Civil penalties for a failure to file are outlined in 26 U.S.C. §§ 6721 and 6722. A failure to file results in a penalty of $250 for each occurrence so long as the failure to file was not an intentional disregard of Title 26. If the failure to file was intentional, then a penalty is assessed at the greater of $25,000 or the amount of the cash transaction not to exceed $100,000. There are also mitigating rules where a deficiency is discovered and promptly addressed, and a reasonable cause defense is available under 26 U.S.C. § 6724.

A failure to furnish correct payee statements may also result in a $250 penalty for each occurrence not to exceed $3,000,000 in one calendar year. If the failure to furnish was intentional, however, the penalty is the greater of $500 or 10% of the aggregate amount of items required to be reported correctly. Again, there are mitigating rules available where a deficiency is promptly added, and a reasonable cause defense is available.

On the criminal side, the crime of a willful failure to file a return, supply information, or pay tax is classified as a misdemeanor, and the criminal penalties under 26 U.S.C. § 7203 include a fine of up to $25,000 ($100,000 for a corporation) and/or imprisonment for up to one year.

Penalties are available under Title 31 as well. Pursuant to 31 U.S.C. § 5321, a civil penalty may be assessed for a willful violation equal to the greater of the amount involved in the transaction (limited to $100,000) or $25,000. If a person violates the structured transaction statute of 31 U.S.C. § 5324, then the civil penalty is up to the amount involved in the transaction. If there was a negligent failure to file, then a civil penalty may be assessed of up to $500 unless a pattern of negligent activity exists. In that scenario, a civil penalty of up to $50,000 may be imposed.

The criminal penalties are harsher under Title 31 than Title 26. If a person willfully violates 31 U.S.C. § 5331, then the person may be fined up to $250,000 and/or imprisoned for up to five years. However, if the violation is committed while violating another law or committed repeat of a pattern of illegal activities involving more than $100,000 in any 12-month period, then the fine ceiling is increased to $500,000 and/or imprisonment for up to ten years.

Comments

  1. Since this is for business transactions, I assume an individual who wins a poker tournament for over $10,000 and is paid in cash along with being issued a w-2g doesn’t also have to file this Form 8300? Could that change if the player was a self-employeed gambler as opposed to just a recreational player?

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