Page 4 - When Money Costs Too Much: Section 8300 Filing Requirements and Penalties

more than merely negligent or reckless failures to file were simply mistakes, the error or omission.” Treasury Regulations
disregard” [Purser Truck Sales at 1339]. result of sloppy recordkeeping and an section 301.6721-1(c)(1). An “inconse-
A clear case of intentional disregard inadequate compliance system: quential error or omission” is defined
is Bickham Lincoln-Mercury v. United Sloppiness is not the same as willful- as “any failure that does not prevent or
States [168 F.3d 790 (5th Cir. 1999)], in ness, particularly in a case such as this hinder the Internal Revenue Service from
which the taxpayer had previously pled one where the business had extraor- processing the return, from correlating
guilty to criminal charges for failure dinarily few cash transactions. Less the information required to be shown on
to file Form 8300, and later withheld than one-half of one percent (8 out the return with the information shown
information from the IRS in a deliberate of 3000) of Tysinger’s sales during on the payee’s tax return, or from oth-
effort to assist a customer who wanted 1999 and 2000 involved reportable erwise putting the return to its intended
to conceal the amount of cash paid for amounts of cash. It is not surprising use.” There are, however, identify sev-
a car. On the other side of the spectrum that the employees on the front lines eral errors that will never be treated as
is Kruse, Inc. v. United States [213 F. inconsequential:
Supp. 2d 939, 944 (N.D. Ind. 2002)], (i) A TIN;
in which a jury found that the IRS had (ii) A surname of a payee (i.e., the
improperly imposed the intentional fail- Even if a taxpayer person required to be furnished a copy
ure to file penalties. There was evidence is aware of the fil- of the information set forth on an
that the taxpayer honestly believed that information return); and
auction businesses were exempt from the ing requirements, it (iii) Any monetary amounts. [Treasury
Form 8300 requirements. This belief was Regulations section 301.6721-1(c)(2)]
wrong, but because the taxpayer genu- should not be sub- There are similar rules for incomplete
inely held it, he did not act willfully. The ject to intentional annual statements [Treasury Regulations
taxpayer’s defense was bolstered by the section 301.6722(b)].
fact that he did not make any attempt to disregard penalties if
conceal his cash receipts but kept accu- Reasonable Cause
rate books and records and deposited all there are other facts IRC section 6724 states that: “no pen-
cash receipts in his bank account. showing that the alty shall be imposed … with respect
In Tysinger Motor Co. [428 F. Supp. to any failure if it is shown that such
2d 480 (E.D. Va. 2006)], the line noncompliance was failure is due to reasonable cause and
between intentional disregard and neg- not to willful neglect.” The taxpayer
ligence is less clear. The IRS conducted unintentional. has the burden of proving that: “(1)
a compliance review and found that the significant mitigating factors excuse the
family-owned automobile dealership failure to file; or (2) the failure to file
had failed to report several transactions arose from events beyond the taxpayer’s
involving cash in excess of $10,000. failed to cross every “t” and dot every control” (Treasury Regulations section
The IRS conducted a second review, in “i” on those rare occasions when 301.6724-1).
which it again found that the company down payments were made with cash. Examples of events beyond the tax-
had been inconsistent with its Form 8300 (Tysinger at 46) payer’s control include the destruction
compliance. After the second review, the Tysinger shows that even if a taxpayer of records or actions of others, including
chief financial officer acknowledged that is aware of the filing requirements, it a customer’s refusal to reveal its TIN,
he was aware of the Form 8300 require- should not be subject to intentional dis- although there are additional special rules
ments and of the penalties for failure regard penalties if there are other facts that apply in those situations [Treasury
to file, and the company implemented showing that the noncompliance was Regulations section 301.6724-1(c); IRM
a system to identify cash transactions. unintentional. 4.26.10.10.3].
The system did not work, however, and The IRS interprets the mitigation
during a third compliance review, the Penalty Defenses: Inconsequen- requirement as “rectifying the failure as
IRS found that the company had failed tial Errors or Omissions promptly as possible once the imped-
to file Forms 8300 for four of the eight There are certain errors or omissions iment was removed or the taxpayer
reportable transactions during the period that will not subject the filer to penal- discovered the failure. Ordinarily, a
under review. The company prevailed ties. An omission on Form 8300 is not rectification is considered prompt if
on its defense that it did not intention- considered a failure to include correct made within 30 days after the date the
ally disregard its obligation but that the information if it is an “inconsequential impediment is removed, or the failure

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