Does Your Business Receive Cash Transactions and Do You Wonder If You Need to Report It? Avoid Civil and Criminal Penalties When Making Cash Transactions via Form 8300

This entry was posted on Friday, October 23rd, 2020 and is filed under Cannabis Law, Corporate Law.

IRS FORM 8300 

Due to the federal government’s designation of cannabis as a Schedule I narcotic drug, licensed commercial cannabis businesses are burdened by a lack of access to banking services, thus they are forced to operate and conduct transactions using large amounts of cash. Any individual or business receiving more than $10,000 cash as payment related to a transaction must file a Form 8300 with the IRS. Failure to do so may result in civil and/or criminal penalties. Cannabis businesses must file a Form 8300 if receiving cash payments over $10,000 for transactions such as the purchase of cannabis and cannabis products, purchase of shares or membership interest, and purchase of real property. 

WHAT IS THE IRS FORM 8300?

According to the IRS, the Form 8300 “provides valuable information to the IRS and the Financial Crimes Enforcement Network (“FinCEN”) in their efforts to combat money laundering.” The Internal Revenue Service (“IRS”) requires a person in a trade or business to file a Form 8300 when receiving more than $10,000.00 in cash in a single transaction or in related transactions. The two determining factors for when a business must file a Form 8300 are: (1) the amount of cash a customer uses for a transaction and (2) when the customer makes the transaction. Generally, a business must file a Form 8300 within 15 days after they receive the cash and keep the document for at least 5 years from the date filed. 

Transactions that require Form 8300 include, but are not limited to, pre-existing debt payments, reimbursement of expenses, sale of goods or services, sale of real and intangible property, reimbursement of expenses, and exchange of cash for other cash. “Cash” includes U.S. currency and currency of any foreign country, cashier’s check, bank drafts, traveler’s checks, and money orders with a face value of $10,000 or less. Cash does not include personal checks drawn on the account of the writer, cashier’s check, bank draft, traveler’s check, or money order with a face value of more than $10,000.

Cash payments must be reported if all of the following criteria are met: 

  1. The amount of cash is more than $10,000;
  2. The business receives the cash as: 
    • One lump sum of more than $10,000, or
    • Installment payments that cause the total cash received within one year of the initial payment to total more than $10,000, or 
    • Previously unreported payments that cause the total cash received within a 12-month period to total more than $10,000
  3. The establishment receives the cash in the ordinary course of a trade or business; 
  4. The same agent or buyer provides the cash; and 
  5. The business receives the cash in a single transaction or in related transactions. 

INFORMATION NEEDED TO FILE FORM 8300

In order to properly fill out and file a Form 8300, the individual or business receiving the cash needs to compile the following information regarding the transaction:

  1. Full name, address, state-issued ID number, and social security number (“SSN”) of the individual who provided the cash payment;
  2. Full name, address, and SSN of the individual -or- legal entity name, address, and employer identification number (“EIN”) of the business on whose behalf the transaction was conducted;
  3. The number of $100 bills provided in the cash payment, if any; and
  4. Invoice numbers related to the cash payment, if applicable. 

When filing a Form 8300, individuals and businesses are also required to provide a written statement to each person(s) named on the Form 8300 to notify them that the business has filed the form (“Notice”). The IRS code and regulations does not specify the format of the statement, thus businesses may use an invoice for the statement of notification so long as the required information provided below is included on the invoice. The statement must include the following information: 

  1. Name and address of the cash recipient’s business; 
  2. Name and telephone number of a contact person for the business;
  3. The total amount of reportable cash received in a 12-month period; and
  4. A statement that the cash recipient is reporting the information to the IRS.

PENALTIES

Individuals and businesses may be subject to civil and criminal penalties for failure to file the Form 8300 or failing to include complete and correct information on the form. The penalty for negligent failure to timely file or failure to include complete and correction information is $270 per return, not to exceed $3,339,000 per calendar year. For persons with average annual gross receipts of not more than $5,000,000, the ceiling is $1,113,000. 

However, if any failure to file is corrected on or before the 30th day after the required filing date, the penalty is reduced from $270 to $50 and the maximum amount imposed shall not exceed $556,000 per calendar year or $194,500 for persons with average annual gross receipts of not more than $5,000,000. 

Further, the penalty for intentional disregard of the requirement to timely file or to include complete and correct information is the greater of $27,820 or the amount of cash received in the transaction, not to exceed $111,000. The penalty applies to each failure. The penalty for the intentional disregard to furnish timely, correct, and complete written Notices to the person who provided the cash is $550 per occurrence. 

These penalty rates are specifically for forms due during the 2020 calendar year, beginning on or after January 1, 2020. The IRS adjusts the penalty amounts annually for inflation, so the penalty rates are subject to change on January 1, 2021. 

In many cases of an IRS audit, such as the numerous audits that occurred at dispensaries in Colorado, the individual or business may settle with the IRS in regard to the failure to file Form 8300. However, the individual or business may be subject to criminal penalties for (1) willfully failing to file, (2) willfully filing a false or fraudulent Form 8300, (3) stopping or trying to stop a Form 8300 from being filed, or (4) setting up, helping to set up, or trying to set up a transaction in a way that would make it seem unnecessary to file a Form 8300. 

WHERE TO FILE

Individuals and businesses may quickly and securely file Form 8300 electronically at no charge using the Bank Secrecy Act Electronic Filing System or by mailing the Form 8300 to the IRS at the following address: 

The Detroit Federal Building

P.O. Box 32621

Detroit, Michigan 48232

FURTHER INFORMATION

Further information regarding Form 8300 may be found on the IRS website here and here. You may also contact an attorney at Katchko, Vitiello & Karikomi, PC to answer any questions you may have. 

By Nellie Niakossary, October 22, 2020