The IRS recently reminded businesses in U.S. territories that they are subject to the rules requiring the reporting of cash payments over $10,000 on Form 8300 (IR-2015-81).
Yet, this reminder leaves those who do business in the United States and its territories no clearer about how the law applies to them and what legal obligations they might have to the U.S. government.
This article attempts to clarify the rather complex U.S. laws requiring people to file Forms 8300 by offering a brief recount of the key provision.
A brief statutory history. The 1970 Bank Secrecy Act required U.S. financial institutions to help the government detect money laundering. Sixteen years later, Congress amended the Internal Revenue Code to require businesses (not just financial institutions) to report cash transactions over $10,000 to the government. In 2001, the PATRIOT Act provisions essentially mirrored the Internal Revenue Code in amending the Bank Secrecy Act.
This created two practically identical laws in two different parts of the U.S. Code; one in Title 26 and the other in Title 31. To prevent a double reporting obligation, Treasury regulations allowed for a single report, Form 8300, to satisfy the legal requirements of both Titles 26 and 31.
Today, there are many who have a general awareness of the $10,000 reporting rule, but are uncertain as to what their specific legal obligations are and what potential consequences they face for violating these obligations.
This is understandable since the laws are highly complex and have almost as many exceptions as general rules. The remainder of this article attempts to highlight the essential rules, exceptions, and punitive consequences regarding Form 8300.
Generally, you must file if you are a person in a trade or business and receive payment of more than $10,000 in cash in a single transaction or related transactions. You must file within 15 days of receiving the cash. While facially this appears simple enough, the complexities arise in understanding the legal definitions of the key words “person,” “trade or business,” “payment,” “cash,” and “transactions.” Let’s take each one in turn.
Person. A person is basically any entity. The term includes individuals, sole proprietors, companies, corporations, partnerships, associations, trusts, estates, and even exempt organizations such as employee plans. Basically, any entity you can imagine meets the definition of “person” under Titles 26 and 31.
Trade or Business. Does this broad definition of person mean that everyone has to file a Form 8300? No, not unless you are engaged in a trade or business. We mentioned previously that even exempt organizations are considered persons. Yet, these organizations don’t file Form 8300 since by definition they do not engage in a trade or business.
Even if you are engaged in a trade or business, the reporting requirement only applies to transactions associated with that specific trade or business. For example, if you run an antique furniture store and a customer pays $12,000 cash for a Hepplewhite period mahogany clock, you have a Form 8300 filing obligation (unless you’re exempt for other reasons).
But if that same customer buys your personal Islander MK II 30-foot sailboat for $15,000 cash, you do not have to file a Form 8300 since you are not in the trade or business of selling boats.
Payment. Generally, you must file a Form 8300 if you receive cash that is (1) over $10,000; (2) received as a lump sum or installments amounting to $10,000 within a 12-month period; (3) received in the course of your trade or business; (4) received by the same buyer (or their agent); and (5) received in a single or series of related transactions. As we shall see later, there are exceptions to many of these elements.
Cash. Generally, cash is defined in the way you typically think of it. It is the coins or the currency of the United States or any other country. But other negotiable instruments are also considered cash, such as a cashier’s check, money order, bank draft, or even a traveler’s check, but only if it has a face value of $10,000 or less. You do not have to report payment if a single financial instrument is over $10,000. This is because the same instruments over $10,000 are subject to reporting directly by the financial institution under the Bank Secrecy Act.
For example, let’s say the same buyer purchases your antique clock for $12,000 with $7,000 in U.S. currency and a $5,000 cashier’s check. You need to file a Form 8300 for the entire $12,000, even though the cashier’s check is less than $10,000.
Cash does not include a check drawn on an individual’s personal account. So if the buyer purchased the antique clock for $12,000 with $7,000 in currency and a $5,000 personal check, you would not have to file Form 8300 since the cash portion of the payment is less than $10,000. Similarly, if the buyer gave you a money order for the whole $12,000, you would not have to report it since the issuing bank would have already done so.
Transaction. Generally, a transaction occurs whenever goods, services, or property are sold; property is rented; cash is exchanged for other cash; contribution is made to a trust or escrow account; a loan is made or repaid; or cash is converted into a negotiable instrument such as a check. A “single transaction” is pretty much what it sounds like: all goods, services, and consideration are being transferred at the same moment in time and space. “Related transactions” are separate single transactions that occur between the same buyer and seller within a 24-hour period.
If you sell two different products to the same buyer within the same 24-hour period and the buyer pays you more than $10,000 cash, you must report the transaction on a Form 8300.
This is true even if the two purchases are otherwise completely unrelated. Even if more than 24 hours elapse between transactions with the same person, you might still have to report it, but only if you know or have reason to believe that each purchase is one in a series of connected purchases. For example, if a person comes into your antique store and pays $8,000 in cash for a rug, and then comes in four days later and pays another $5,000 in cash for a tapestry because “it goes nicely with the rug,” you are most likely required to report the entire $13,000 as a related transaction on Form 8300.
A “designated reporting transaction” for these purposes is the retail sale of
(1) a consumer durable good (e.g., an automobile or boat);
(2) a collectible (e.g., an antique, artwork, rare coin, etc.); or
(3) travel or entertainment if the cumulative sales price of all items sold for the trip or event in a single or related transaction is over $10,000. The total amount for travel or entertainment includes the sales price of all airfare, car rentals, lodging, event tickets, and other similar expenses.
Assuming you got out of the antique business and opened up a travel agency, if someone came in and paid for a large group boat charter and tickets to a sporting event with a $9,000 money order and $1,500 in currency, you would have to report the transaction on a Form 8300. But remember, this is only because you are now in the trade or business of travel and entertainment. The same reporting requirement might not hold if you were still in the antique business.
Number of published expatriates per quarter 2008 to Q1 2015
There is a “foreign transaction exception,” which means the transaction is not reportable if it occurs entirely outside of the 50 United States, the District of Columbia, or any U.S. territory or possession.
However, if any part of the transaction occurs in the United States, DC, or a U.S. possession or territory, even the exchange of cash alone, it will not qualify for the exception and the normal reporting rules apply.
For example, assume you are a U.S. citizen subject to the Internal Revenue Code and your antique store is in the Cook Islands. A customer from Puerto Rico purchases the antique clock by mailing you two money orders each for $6,000 and asks you to ship the clock to her office in New Zealand. Is the transaction reportable on Form 8300? Since part of the transaction (the sending of the money orders) took place in Puerto Rico, you are required to report the transaction.
Taxpayer Identification Number (TIN). Additionally, you have to report the TIN of the person (or persons) from whom you receive the reportable cash. What do you do if you don’t know the TIN? The law requires that you ask. This can be particularly burdensome since you and not the buyer could be subject to significant penalties if you do not report the TIN accurately or if it is missing on the form. This imposes a significant due diligence requirement on you as the seller.
Penalties. Failure to follow these rules can result in both civil and criminal penalties. They start at $100 per late return with a calendar year cap of $1.5 million if you negligently fail to file Form 8300, and go up to $100,000 per late return with no calendar year cap if the government finds that you intentionally disregarded the rules. Willfully violating these rules or helping others do so can bring up to five years in prison, a $500,000 fine, and the cost of your prosecution.
In sum, there is no way of getting around the complexity of these rules, but it helps to be aware of some of the key provisions. First, recognize what trade or business you are in. I used an antique dealer in this article, but these rules apply to lawyers, accountants, financial advisors, and any other service provider.
If you receive more than $10,000 in cash, be ready to report it within 15 days on a Form 8300. If you receive less than $10,000 by some other negotiable instrument, but the total exceeds $10,000, you most likely have to report it. Also be aware of any transactions less than $10,000 that occur within 24 hours of each other or those that appear to constitute a series of purchases.
Even if you are not in the United States, DC, or a U.S. possession or territory, be very careful that all of the transaction is outside these jurisdictions before you rely on the foreign transaction exception. Lastly, if you believe you need to file a Form 8300, be sure to get the TIN of the buyer and be reasonably sure the number is accurate.
Of course, there is more to this topic than can fit within the bounds of this publication, and you should be sure to get competent legal advice about your obligations in any such transaction.
Hopefully this awareness will help you know when to seek such advice. Just be prepared to hand over your taxpayer identification number if that advice is more than $10,000 and you pay in cash.