IRS 8300 Cash Reporting Rule

The IRS 8300 Cash Reporting Rule (the “8300 Rule”) wins the prize for “Law Most Likely to Get you Thrown in Jail for Inadvertent Non-Compliance”.  Unfortunately, unless your staff is well versed in the rule and verifies each customer’s complete transaction history prior to accepting any form of payment, your dealership probably violates this rule on a monthly basis.

Auto dealerships are a prime target for money launderers and that fact hasn’t been lost on the federal government.  The IRS 8300 Cash Reporting Rule was intended to prevent “dirty money” (acquired from illegal activities) from entering the ordinary stream of commerce where it would become “clean” and usable in large quantities without warranting attention from those tasked with enforcing our laws.  The point is, the IRS wants to know how much money you earned and how you earned it.

WHAT DOES THE 8300 CASH REPORTING RULE REQUIRE?

1) Any person in trade or business receiving more than $10,000 in cash in a single or related transactions (for goods or services) must file a FINCEN 8300 form within 15 days of receiving payment.

2) You must file a 8300 form for any transaction in which the recipient knows or has reason to know that the payor is attempting to avoid the 8300 rule.

3) It is illegal for any person to purposefully structure a transaction so as to avoid the 8300 filing requirements.

PENALTIES FOR NONCOMPLIANCE

There are both civil and criminal penalties for failure to comply with the 8300 reporting requirements.  The civil penalty for purposeful disregard of the 8300 rule is the greater of $25,000 or the amount of money you received which you were required to report but failed to do so.  Criminal penalties include 5 years in jail, $250,000 fines for an individual, and $500,000 fines for corporations.

WHAT FORMS OF PAYMENT QUALIFY AS CASH?

For purposes of the 8300 Cash Reporting Rule, “cash” is any money not currently in the banking system.  For example, a $20 bill is cash but a personal check is not; a money order is cash but verified proceeds from a bank loan is not.  Can you understand why?  A personal check draws upon funds already in the system (the drawer’s bank account), so it isn’t cash for purposes of the 8300 Rule.  It’s the bank’s job to ensure that the money being deposited into the account isn’t dirty.

• “Cash” is:
  • Actual Dollars
  • Travelers Checks
  • Cashiers Checks
  • Money Orders
  • Bank Drafts
• Not “Cash”:
  • Personal Checks
  • Proceeds of Bank Loan where you have some statement from the lender
  • “Wired” funds from a bank account

HOW DO I KNOW WHEN A TRANSACTION IS A “RELATED TRANSACTION”?

There are two types of related transactions: 1) transactions between the same buyer and seller occurring within a 24 hour period, and 2) transactions between the same buyer and seller greater than 24 hours apart if you know or have reason to know that each transaction is one of a series of connected transactions.

Pay close attention because this is where most dealers make mistakes. The most difficult “related transaction” to catch is that which occurs more than 24 hours after the initial transaction. Legalese aside, if for whatever reason you think that a transaction might be related – file the form. It’s not worth the risk.

Let’s look at an example to see how easy it is to run afoul of the law:

Jerome purchases a car from you for $9500 and pays using a cashier’s check made out to your dealership.  As he’s leaving F&I, Jerome mentions second thoughts about not purchasing the sealant.  Three days later Jerome visits the service department and pays $600 in cash to have the sealant applied.  The service manager accepts the payment and applies the sealant.

Were you able to determine what went wrong and when?  Jerome’s purchase of the sealant was a related transaction which pushed the total transaction to $10,100 and thus necessitated filing an 8300 form.  Scary, right? Would your service writer have any idea that Jerome paid using “cash” (cashier’s check) for the car?  Do they even have access to that sort of information? How confident are you that your service writer would catch this and file the form?  What they don’t know can land you in jail.

INSTALLMENTS

Be aware that installment payments may cause the total cash received to exceed $10,000.  For purposes of the 8300 Rule, it doesn’t matter whether it is a purchase or lease.  Thus, if the first payment you receive is less than $10,000 but subsequent payments within one year of the first payment cause the total cash received to exceed $10,000 you must file within 15 days.

Let’s look at an example:

Assume you receive a cash payment of $12,000 on January 1.  On February 1 you receive additional cash payments for the same transaction in the amount of $3000, and $5000 on March 1, and $2500 on April 1.  You must file form 8300 by January 15 for the $12,000 payment you received on January 1.  By April 15^th you must file another 8300 form for the $3000, $5000, and $2500 payments you received because they total $10,500.

WHAT IF I TAKE IN OVER $10,000 CASH BUT THE DEAL IS UNWOUND?

If you take in a cash payment exceeding $10,000 but the car deal is eventually unwound you still need to file form 8300.  The deal not going through may be a clever attempt to launder money.  Think about it, how would you return the customer’s money to them?  You’d write them a check from your store and that check would be clean money.

WHAT CAN I TELL CUSTOMERS ABOUT THE 8300 RULE?

Customers will often be curious about the 8300 rule but you must be very careful about what you say because you never want to give the impression that you are assisting a customer in avoiding the filing of form 8300.  Remember, structuring a deal to avoid filing may land you in jail.

SUSPICIOUS ACTIVITY

The 8300 form has a special box allowing you to voluntarily indicate “suspicious activity”.  Mark this box if the circumstances surrounding a particular transaction are suspicious but yet don’t quite rise to the level of requiring that you file a 8300 form.  Its voluntary – file if you want.  I remember a client telling me she once filed a suspicious activity 8300 form because the customer brought in a “duffel bag filled with cash that smelled like weed”.  So think of it as the “good samaritan box” or the “rat box” – whichever floats your boat.  And since filing an 8300 form for suspicious activity is voluntary, it is actually illegal for you to tell your customer that you’re doing so.

NOTICE TO CUSTOMERS

You must notify every customer for whom you’ve filed an 8300 form in writing by January 31^st of the following year.  There is no specified format for the notice and thus many dealers prefer to send the sales invoice along with a letter indicating that the transaction is being reported to the IRS.  The lone exception to the notice requirement is as noted above for suspicious activity.

HOW TO ENSURE COMPLIANCE

The 8300 Form must be filed within 15 days of receiving the payment that pushed the total transaction above $10,000 cash.  Accordingly, it may be wise to have a customer database that tracks all payments received from each customer and conduct a weekly audit of customer accounts to determine which customers may have paid more than $10,000 in cash.  The system could then automatically file the appropriate form for each person who meets the stated criteria.  Contact us for more strategies to mitigate the risks for your dealership.