ARE YOUR CASH REPORTING POLICIES IN NEED
OF CHANGE?
By: Keith E. Whann
Deanna L. Stockamp
Whann & Associates, LLC
With tax issues on virtually every Dealer’s mind as of late, now is
a good time to think about auditing your dealership’s cash reporting
policies. As some motor vehicle dealers are discovering, failing to
comply with the Cash Reporting Rules can be costly. One dealer that
was recently audited by the Internal Revenue Service (IRS) to determine
compliance with the Rules was notified that the dealership owed more
than $236,000 in fines and penalties for 10 non-reported cash transactions.
Remember, failing to report cash transactions involving $10,000 or
more is not only a violation of the Internal Revenue Code, but also
the USA Patriot Act.
On October 26, 2001, following a flurry of legislative activity that
occurred in the wake of the September 11th terrorist attack on the United
States, the President signed the Patriot Act into law making a number
of amendments to the anti-money laundering provisions of the Bank Secrecy
Act and the Money Laundering Control Act of 1986. The amendments were
intended to make it easier to detect, prevent, and prosecute international
money laundering activities and the financing of terrorism. One of the
requirements under the USA Patriot Act is the reporting requirement adopted
pursuant to Section 365 of the Act. Pre-existing laws required financial
institutions to file a Currency Transaction Report (CTR) with the Financial
Crimes Enforcement Network (FinCEN) whenever they received large sums
of money in one or a series of related transactions. Section 365 of the
USA Patriot Act expanded the scope of entities required to file reports
to include “anyone” engaged in a trade or business that receives more
than $10,000 in cash in one transaction (or two or more related transactions).
Section 365 also requires financial institutions to establish procedures
that enable employees to track all cash transactions to determine when
a report should be filed and prohibits anyone from structuring a transaction
to avoid the cash reporting requirements.
The Form used to report such transactions, titled “IRS Form 8300/FinCEN
Form 8300,” is virtually identical to the IRS Form 8300 that motor vehicle
dealers are required to complete pursuant to a similar provision under
the Internal Revenue Code. After enactment of the Patriot Act, the IRS
issued a Rule amending its regulations to clarify that the information
reported to the IRS on cash transactions is also required to be reported
to FinCEN. Motor vehicle dealers were required to begin using the new
Form as of January 1, 2002.
In order to comply with the Form 8300 filing requirements, it is important
to understand how the term “cash” is defined for purposes of reporting.
The term “cash” means U.S. and foreign currency in excess of $10,000.
It also includes a cashier’s check, money order, bank draft, or traveler’s
check having a face amount of $10,000 or less when two or more are presented
or when it is combined with cash so that the total amount exceeds $10,000.
The term “cash” does not include a personal check, a check drawn on the
account of a business, certified personal and business checks, and amounts
charged to a credit card are not considered cash.
If the dealership receives $10,000 or more in cash, the Form 8300 should
be filed by the 15th day after the date the cash was received. If the
due date falls on a Saturday, Sunday or legal holiday, it should be filed
on the next business day. If a dealership receives more than one cash
payment for a single transaction or for related transactions, it must
report the multiple payments if it receives a total amount that exceeds
$10,000 within any 12-month period within 15 days of the date the dealership
receives the payment that causes the total amount to exceed $10,000.
Keep in mind that filing the Form 8300 is not the dealership’s only obligation;
it is also required to give a written statement to each person named
on a required Form 8300 on or before January 31st of the year following
the calendar year in which the cash is received. The statement must show
the name, telephone number and address of the information contact for
the dealership, the aggregate amount of reportable cash received, and
that the information was furnished to the IRS.
Given the current political climate regarding tax reform and preventing
terrorism, enforcement in this area has likely just begun. The dealership
may be subject to penalties if it fails to timely file a correct and
complete Form 8300 or it fails to furnish a correct and complete statement
to each person named in a report and it cannot show that the failure
was due to reasonable cause. Therefore, it is important that motor vehicle
dealers develop a written policy that explains how cash transactions
involving $10,000 or more will be handled and provide ongoing training
programs for its employees. In addition, the dealership should implement
auditing procedures to ensure that it remains in full compliance with
the filing requirements. If you discover that a cash transaction has
not been properly reported, you can file the Form 8300 late. Filing late
may result in some fines and penalties, but they are insignificant compared
to the fines and penalties the dealership may incur for not filling at
all, which include fines of up to $500,000 for corporations, seizure
of assets and, in some cases, imprisonment for up to five years.
The information contained herein has been provided by Keith E. Whann
and Deanna L. Stockamp of the Law Firm of Whann Associates, LLC, and
is for general information purposes only. You should contact legal
counsel for specific application.
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