Reporting cash receipts over $10,000.

• Author: Holloway, Susanne

Since 1985, Sec. 6050I has required that persons who, in their trade or business, receive more than $10,000 in cash in a transaction or a series of two or more related transactions file an information return reporting this to the IRS. This same information reporting requirement is mirrored in Section 5331 of the Bank Secrecy Act of 1970. The form that is used to satisfy both reporting requirements is Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The original intent behind these statutes was to enable the IRS and Treasury's Financial Crimes Enforcement Network (FinCEN) to detect and pursue money-laundering schemes. Cash monies received from illegal enterprises are often used to purchase high-dollar tangible goods, commodities, and real estate investment properties. However, besides helping to track down money laundering, the requirements imposed by these statutes also provide an avenue for identifying individuals and businesses using cash income that has not been reported for income tax. Tax owed on this unreported cash income is potentially a significant piece of the "tax gap"--the difference between the tax owed in a year and the amount that is actually paid. (1)

Cash economy transactions are at high risk of not being reported, and estimates are that the cash economy comprises as much as 35% of the tax gap. (2) IRS Commissioner Charles Rettig has made a point of highlighting the expansion of the tax gap in his effort to seek funding for more enforcement resources. (3) Coincidentally, the IRS has recently reminded businesses of their Form 8300 reporting obligations. IRS news releases and accompanying fact sheets in 2019 (4) and 2020 (5) and again in 2021 (6) summarize the requirements for reporting large cash transactions. It is also worth noting that the current commissioner is very familiar with the reporting requirements of Form 8300, having once published an article about it. (7)

Many traditional cash-intensive businesses are well versed in these reporting requirements, including dealers in automobiles, recreational vehicles, boats, and jewelry, as well as pawnbrokers, bail bondsmen, attorneys, insurance companies, and travel agencies. Within the last decade, cannabis businesses have become acutely aware of the Form 8300 reporting requirements. However, many other businesses may, under certain circumstances, be subject to these reporting requirements. For example, if a landlord accepts cash payments for a lease of property, or if a contractor or retail business accepts cash in a lump sum or in installment payments for goods or services, a Form 8300 filing may be required.

CPAs should be cognizant of the general requirements for reporting large cash transactions, even if they are not typically the preparers or filers of the Form 8300. Practitioners who are aware that their clients accept (even infrequently) cash payments from customers for goods or services should consider alerting or reminding such clients of the reporting requirements. In addition, practitioners should alert their clients who accept cryptocurrencies or other digital assets as payment for transactions. The Infrastructure Investment and Jobs Act, (8) signed into law on Nov. 15, 2021, modifies Sec. 6050I to include digital assets, including cryptocurrencies, in the definition of cash for purposes of Form 8300. This modification applies for return filings and customer statements furnished after Dec. 31, 2023.

Once a reporting requirement is triggered, there is a 15-day window to file the Form 8300, as well as a requirement to provide a subsequent customer notice. There is a small civil penalty for each return not filed and for a failure to furnish the customer notice; such penalties can be reduced through corrective measures. However, intentionally disregarding the filing requirement, or structuring transactions to avoid the filing requirements, can trigger penalties that are exponentially larger.

The discussion below reviews the IRS's Form 8300 reporting requirements, focusing on practical examples of reporting situations, as well as situations where reporting is not required. In addition, the discussion reviews several court decisions that have examined the IRS's imposition of penalties for reporting failures and sets forth some recommendations and guidelines for practitioners when advising clients with Form 8300 reporting obligations.

Who must file?

In general, any person who, in the course of a trade or business, receives cash in excess of $10,000 in one transaction or multiple related transactions must file an information return with the IRS (Form 8300) with respect to the cash received. (9)

A "person" includes an individual, trust, estate, partnership, association, company, or corporation. (10) A person does not include a governmental unit, which includes the U.S. government, states, political subdivisions of states, and integral parts of states and political subdivisions. (11) "Trade or business" has the same meaning as in Sec. 162. (12)

Tax-exempt organizations, including employee benefit plans, are considered persons. (13) Charitable organizations are not required to report cash charitable contributions on Form 8300, as they are not receiving the cash in the course of a trade or business. (14) However, charitable organizations must report noncharitable cash payments received, such as cash received for real or personal property rentals or sales of property or goods from an unrelated trade or business activity.

Persons include those that collect cash for the account of another (such as the collection of accounts receivable). (15) Persons can include agents; agents receiving cash in excess of $10,000 on behalf of a principal must report receipt of the cash. (16) This includes receipt of cash deposited into the account of the agent or the account of the principal, or even if the agent delivers the cash directly to the principal. (17) There is a limited exception where the cash is used by the agent within 15 days in a second transaction and the agent discloses the name of the principal to the ultimate recipient of the cash. (18)

What transactions are covered?

A "transaction" is the underlying event giving rise to the transfer of cash, and the regulations give broad examples of transactions: a sale of goods or services; sales of real property or intangible property; rentals of real or personal property; exchanges of cash for other cash; contributions to trust or escrow arrangements; payments of preexisting debts; conversions of cash to negotiable instruments; reimbursement of expenses; and repayment of loans. (19)

A transaction cannot be separated into multiple transactions to avoid reporting--these are considered "related transactions." Related transactions involve multiple payments that are all related to the same underlying event resulting in the initial transfer of cash. (20) They include (1) any transaction between a payer and a recipient of cash in a 24-hour period, or (2) any such transactions during a period in excess of 24 hours if the cash recipient knows or has reason to know that each transaction is one of a series of connected transactions. (21)

Example 1: In the afternoon, an individual purchased a table at a retail furniture business for $8,000 cash. The next morning, the individual returns to the same establishment and purchases a painting for $2,500 cash. Although the purchases involve different goods and occur on different days, the purchases occur within a 24-hour period and are considered related transactions; therefore, the total amount ($10,500) must be reported.

Example 2: A doctor charges $11,000 for medical treatments to an individual. The individual pays $6,000 cash after the treatment, then pays the balance in two installments: $3,000 in cash one month later and the final $2,000 cash payment in the following month. The aggregate amount of cash paid represents a single transaction, the provision of medical services, that must be reported by the doctor on Form 8300.

Example 3: A customer purchases a piece of factory equipment for $9,500 cash and 10 months later purchases replacement parts, accessories, and equipment services for $1,500 cash. If the additional transactions were not a part of the original $9,500 sales contract and the customer has no legal obligation for the additional purchases, this is not a reportable transaction.

There are limited exceptions to the reporting requirements. They include financial institutions (22) and casinos with gross annual gaming revenue of more than $1 million. (23) In addition, transactions that are not related to a trade or business (e.g., a sale of a personal automobile or boat for more than $10,000 cash) need not be reported. (24) Transactions in which the entire transaction, including the receipt of cash, occurs outside of the United States need not be reported. (25) However, if any part of the entire transaction occurs in Puerto Rico, or a possession or territory of the United States and the cash recipient is subject to the jurisdiction of the IRS, then the cash recipient must file a Form 8300. (26) Although not excepted from reporting, there are specific reporting requirements for criminal court clerks receiving more than $10,000 in bail. (27)

What is (and is not) considered 'cash'?

Under its most narrow definition...