With dwindling inventories, health and safety protocols, various leave laws, and the like, dealers have constantly had a full plate of things to worry about during this pandemic. Likely, the last thing on a dealer’s mind during this time is a government agency audit or enforcement action. Well, not to be the bearer of bad news, but we have heard from several dealers that they have recently been tagged by the IRS for audits on Form 8300 compliance. The silver lining here is that most of you know about the IRS/FinCEN Form 8300, and so the information in this article will not be completely novel. Rather, this article should be used as a refresher on Form 8300 and the Cash Reporting Rule.
What triggers the filing requirement for a Form 8300?
The purpose of the Cash Reporting Rule is to detect and prevent money laundering. Accordingly, when your dealership receives more than $10,000 in cash in one transaction or in two or more related transactions, you must report this by filing the IRS/FinCEN Form 8300 with the IRS (note that California businesses must also file a copy of the Form 8300 with the Franchise Tax Board).
When should we file the Form 8300?
A Form 8300 must be filed with the IRS within 15 days of receiving cash (or cash equivalent) exceeding $10,000. If the 15th day falls on a weekend or holiday, the Form 8300 should be filed on the next business day.
What is considered the same or related transactions?
Any transactions conducted between you and the customer within a 24-hour period are considered related transactions. For example, a customer pays $9,000 in cash for a vehicle. The next morning, the customer returns and pays $4,000 in cash for parts for the same vehicle. A Form 8300 would need to be filed because the dealer received over $10,000 in cash within a 24-hour period.
Also, transactions are considered related even if they occur over a period of more than 24 hours if you know, or have reason to know, that each transaction is one of a series of connected transactions. For example, if a customer makes weekly payments in cash for a vehicle to a dealer, the dealer must file a Form 8300 within 15 days of when the total amount exceeds $10,000 (and would need to file another Form 8300 within 15 days each successive time the payments aggregate over $10,000).
What is and what is not considered cash?
Cash means U.S. and/or foreign currency in excess of $10,000. Cash also includes a cashier’s check, money order, bank draft, or traveler’s check having a face amount of $10,000 or less when presented with another such instrument or currency (or combinations thereof), so that the total amount exceeds $10,000.
Cash does not include a cashier’s check, money order, bank draft, or traveler’s check having a face amount of over $10,000. Cash also does not include a personal check, a business check, ACH transfer, amounts charged to a credit card, or amounts charged to a debit card.
What do we provide to the customer?
Each person named on a Form 8300 must receive a statement by no later than January 31 of the next calendar year. The statement must provide 1) the name, address, and phone number for a point of contact at the dealership; 2) the amount of cash received; and 3) the fact that the information was furnished to the IRS. Ensure that you keep a copy of this statement and proof you sent it to the customer in case of an IRS audit. Here is an example of a statement that could be used:
Pursuant to federal law, we are notifying you that we filed IRS/FinCEN Form 8300 with the Internal Revenue Service as a result of the cash or cash equivalent payment(s) that you provided to us.
Our records show that as part of your transaction(s) with us, you have paid a total of $_______ in cash or cash equivalent.
If you have any questions concerning cash reporting laws, please contact the IRS or visit www.irs.gov.
[Dealership name, address, and phone number for point of contact]
Remember, you are prohibited from informing a customer of the Form 8300 filing if you suspect that the transaction is suspicious (i.e., potentially trying to avoid the cash reporting requirement or that there is a sign of illegal activity). You notify the IRS of this suspicious transaction by checking the corresponding box on the Form 8300 even if you have not received more than $10,000 in cash or cash equivalents. With that said, if you actually believe a transaction to be illicit or suspicious, why would you want to go forward with the transaction in the first place?
Also, remember that you must not discuss the Form 8300 filing requirement with the customer at the point of sale, as doing so can lead to allegations that the dealer aided the customer in structuring the transaction or coached the customer to avoid the cash reporting requirements. Even bringing up the Form 8300 filing requirements risk potentially being interpreted as structuring or coaching. Dealers should instruct employees not to discuss cash reporting requirements with customers, and employees should refer any questions to their manager or the designated manager that has been assigned this responsibility.
Where do you file the Form 8300?
You can file the Form 8300 electronically here. You can also mail the Form 8300 to the IRS at:
The Detroit Federal Building
P.O. Box 32621
Detroit, MI 48232
What about penalties?
Failing to properly abide by the Form 8300 requirements can subject you to civil and criminal penalties. Regarding civil penalties, the IRS adjusts these amounts annually for inflation. Check here for the civil penalty amounts for returns due to be filed in 2016 through 2021.
Regarding criminal penalties, if you willfully fail to file, fail to timely file, or fail to correctly complete the Form 8300, you can be fined up to $25,000 (up to $100,000 if a corporation) and/or imprisoned for up to five years.
What are some additional tips/best practices?
- Only file Form 8300 when necessary (or if reporting a suspicious transaction). Remember, if you receive exactly $10,000 in cash, it is not necessary to file Form 8300. Even if a Form 8300 is filed unnecessarily, you can nevertheless be fined by the IRS if the Form 8300 was incomplete or completed incorrectly.
- Have a Form 8300 Cash Reporting Policy in place and make sure to train all salespeople, finance managers, and sales managers regarding cash reporting.
- Appoint a Cash Reporting Coordinator (CRC). All finance managers should communicate with the CRC whenever large sums of cash are received (in an amount to be designated by the CRC). The CRC should be responsible for checking that all Form 8300s are properly completed and timely submitted, mailing customer statements on time, making sure all applicable staff receive training on cash reporting requirements, and creating a system to track multiple related payments and monitoring those payments to see if/when they exceed $10,000.
What are some helpful links?
Below are some helpful links/resources:
If you have any questions regarding this, or any other situation that may arise in your sales or service departments, hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or email@example.com.