Page 1 - When Money Costs Too Much: Section 8300 Filing Requirements and Penalties

COLUMNS I Tax Practice & Procedure

When Money Costs Too Much

Section 8300 Filing Requirements and Penalties

By Megan L. Brackney

he Internal Revenue Code and the Bank Secrecy Act bank, was received in payment of certain promissory notes or as
(BSA) require that persons engaged in a trade or part of an installment sale or down payment plan in the ordinary
Tbusiness file Form 8300, Report of Cash Payments course of the recipient’s trade or business, subject to certain
Over $10,000 Received in a Trade or Business, any time the additional requirements [Treasury Regulations section 1.6050I-
business receives more than $10,000 in cash in a single trans- 1(c)(iv-vi); Internal Revenue Manual (IRM) 4.26.10.5.3].
action (or two or more related transactions) in the course of
their trade or business [IRC section 6050I(a); 31 USC 5331] . What Is a Trade or Business?
The business must also furnish annual statements notifying the The term “trade or business” has the same meaning as in IRC
customers who made the payments that it reported the trans- section 162. Thus, taxpayers who sell personal property outside
actions to the IRS [IRC section 6050I(e)]. Congress enacted of any trade or business do not have a reporting requirement
these reporting requirements in the 1980s to enable the IRS to [Treasury Regulations section 1.6050I-1(d)(3)]. For example,
monitor large cash transactions and detect money laundering an individual who sells a boat that had been owned for per-
schemes, and there are signficant civil and criminal penalties sonal use for more than $10,000 in cash does not have to file
for failure to comply. a Form 8300.
The categories of transactions that must be reported are
What Is Cash? extremely broad. “Transaction” is defined to include:
The obvious first question that comes to mind is what is A sale of goods or services; a sale of real property; a sale
considered “cash” for purposes of Form 8300? Cash is defined of intangible property; a rental of real or personal proper-
in Treasury Regulations section 1.6050I-1(c)(1) as: ty; an exchange of cash for other cash; the establishment
■ U.S. and foreign coin and currency received in any trans- or maintenance of or contribution to a custodial, trust, or
action; or escrow arrangement; a payment of a preexisting debt; a con-
■ Monetary instruments, such as cashier’s check, money order, version of cash to a negotiable instrument; a reimbursement
bank draft, or traveler’s check having a face amount of $10,000 for expenses paid; or the making or repayment of a loan.
or less that is received in a designated reporting transaction [Treasury Regulations section 1.6050I-1(c)(7)(i)]
(defined below), or that is received in any transaction in which A transaction may not be divided into multiple transactions
the recipient knows that the instrument is being used in an in order to avoid reporting. “Related transactions” are any trans-
attempt to avoid the reporting of the transaction under either actions conducted between a payer (or its agent) and a recipient
section 6050I or 31 USC section 5331. of cash in a 24-hour period, or transactions conducted over a
■ Cash does not include a check drawn on the payer’s own longer period if the recipient knows or has reason to know that
account, such as a personal check [Treasury Regulations section each transaction is one of a series of connected transactions
1.6050I–1(c)(1)(ii)]. [Treasury Regulations section 1.6050I-1(c)(7)(ii)].
The rules for reporting monetary instruments received The Form 8300 requirements apply not just to the direct
in a “designated reporting transaction” can be complex. A seller or service provider, but the person who acts on behalf of
“designated reporting transaction” is “a retail sale … of a another as an agent as well. An agent who receives cash from
consumer durable, a collectible, or a travel or entertainment a principal and uses it within 15 days in a second cash trans-
activity” [Treasury Regulations section 1.6050I-1(c)(iii)]. A action is not required to report initial receipt of the cash if the
consumer durable is defined as an “item of tangible personal agent discloses the name, address, and taxpayer identification
property of a type that, under ordinary usage, can reasonably number (TIN) of the principal to the recipient of the second
be expected to remain useful for at least 1 year, and that has reportable cash transaction; the recipient in the second transac-
a sales price of more than $10,000” [Treasury Regulations tion is required to file Form 8300 [Treasury Regulations section
section 1.6050I-(c)(2)]. 6050I-1(a)(3)]. The Form 8300 requirements also apply in other
There are several exceptions. A monetary instrument will not situations where cash is received on account of another, such
be treated as cash if it constitutes proceeds of a loan from a as a business that collects delinquent accounts receivables for

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