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Form 8300 (2019) – IRS Cash Payment Penalties & How to Avoid Them

Form 8300 (2019) – IRS Cash Payment Penalties & How to Avoid Them

Form 8300 (2019) - IRS Cash Payment Penalties & How to Avoid Them by Golding & Golding

Form 8300 (2019) – IRS Cash Payment Penalties & How to Avoid Them by Golding & Golding

Form 8300 is an important form for individual who own businesses, and receive payments of more than $10,000 (it does not need to be $10,000 at one specific transaction.

Filing the 8300 with the IRS should be a pattern and practice for any business receiving large cash payments. But, if the filer also has foreign accounts, is receiving cash deposit abroad, and especially if the business-owner is keeping the money overseas – it is crucial to remain in IRS compliance.

Per the IRS:

Generally, you file Form 8300 by the 15th day after the date the cash was received. If that date falls on a Saturday, Sunday, or legal holiday, file the form on the next business day.)

If you do receive payments in excess of $10,000, you may have very strict reporting requirements to the IRS and FinCEN. The failure to submit proper reports may lead to fines, penalties and even criminal investigations.

Form 8300

Form 8300 is an IRS form which requires businesses that receive large cash payments (usually in excess of $10,000) to report the transaction to the IRS on IRS Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or Business).

Where can I Obtain Form 8300?

You can obtain Form 8300 from the IRS website. Here is a link to the Form.

Common issues involving Form 8300 include:

  • Is it legal to receive cash payments?
  • What is IRS Form 8300?
  • When do I file Form 8300?
  • Can I be liable for cash structuring by our customers?
  • What steps can I take to comply with Form 8300?
  • What are the 15-day exceptions?
  • What is the 12-month rule?

Why does the IRS Care about Form 8300?

Because the IRS doesn’t believe you. Rather, the IRS believes that any individual who receives a cash payment is not going to properly report that cash payment. With that said, there are probably many individuals who receive cash payments and don’t fully report it. The problem is, with the way the banking system is heading —  there are more regulations and more requirements for banks and other financial institutions to report cash deposits and payments that are made.

This is amplified significantly when it involves foreign persons, foreign banks, foreign money, etc..

Offshore Clients

Thanks to the Internet, individuals within the United States are able to conduct business worldwide without the cost of having to travel to different countries. For example, instead of having to travel to Hong Kong to meet a potential client, a person can literally go online and speak with a client or potential client from the comfort of their office —  as if the person is sitting in the same room, which is awesome.

Nevertheless, the IRS is very skewed when it comes to receiving money from overseas.

Offshore Money

First, the IRS likes to categorize all money from outside of the United States as offshore. As we have mentioned many times on this website, offshore does not mean the Bahamas, the Caymans, Panama or any other tax haven. To the IRS, offshore means outside of the United States.

For example: Peter is from Japan. Peter still has bank accounts in Japan, because he lived in Japan for 40 years before coming to the United States. From the IRS’ perspective Peter has offshore accounts. From Peter’s perspective he has bank accounts in the country he lived for 40 years of which is still a citizen.

Foreign Deposits

We have been running into the same problem with our clients who have their own clients outside of the United States and are finding themselves subject to a form 8300 audit. As a result, we thought we would try to be proactive and prepare this post to try to help some of our clients educate their own clients on ways to avoid this issue.

More than $10,000

This is the key number. As provided by the IRS, “The general rule is that you must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if your business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions.”

24-Hour Period – Be Cautious

While the general rule is that a series of transactions with related transactions that take place within 24 hours, there is a caveat. That Caveat is that the person receives multiple payments outside of that 24 hour period but the recipient knows that each transaction is related (a series of transactions) then that payment must be reported as well.

Example: David runs his own business. He receives to cash payments involving the same transaction over one week. The Total value exceeds $10,000. David knows that the money relates to the same transaction — David must report form 8300; it does not matter that the transactions are outside the 24-hour period.

Foreign Money

Oftentimes, different countries operate banking laws, well… Differently. Therefore, it is not uncommon for example for foreign customers to think they can outwit the US system by engaging in payment spreading.

Here’s an example we see often: Scott is a purchaser/customer in Malaysia. He wants to purchase equipment from a U.S. Person for more than $20,000 dollars of equipment from a US company in a single transaction. Scott does not want to send a check. Rather, on five different days he has five different people go to five different financial institutions in Malaysia and each make a $4000 deposit.

From Scott’s perspective, the transactions cannot be held to be related, because they are different branches and is outside the 24-hour period.

Of course, there is one key fact that Scott did not take into consideration: all of the money is going into the same account, the same account number, at the same financial institution, from the same foreign country — stemming from the same transaction.

As such, it’s going to look very conspicuous if the US is this person does not file a form 8300 and tries to make the argument that he suddenly received five different $4000 payments from various branches throughout Malaysia into his account during the same week.

Exceptions

Like anything involving the Internal Revenue Service, there are always exceptions. But, with these exceptions it should be noted that they are very specific. Therefore, before you decide to rely upon one of these exceptions is important to speak with an international business/tax attorney to make sure you have a solid idea of what the exception is to make sure that you fall outside of the reporter’s.

Received Payments Abroad? Remember FBAR & FATCA

Depending on the facts and circumstances of your situation and your business you may be able to avoid reporting by receiving the cash transaction entirely outside of the United States. There are nuances to this rule, so it is important to be cautious if you’re going to rely upon.

With that said, it is also important to note that the business and/or the owner will have other reporting requirements in accordance with the Internal Revenue Service, FATCA and FinCEN.

The most important reporting requirements usually involve the following:

FBAR

An FBAR statement is a Report of Foreign Bank and Financial Accounts form. It is electronically filed annually with the Department of the Treasury online. Before this year (2016) the form had to be filed no later than June 30th of the current tax year in order to report the accounts for the prior tax year (File in 2015 to report the 2014 Maximum Account Balances). The law is changing in 2016 which will be applicable in 2017, and will have an April, 2017 due date.

An FBAR is required to be filed when a person or business (explained below) has an annual aggregate total of foreign accounts that exceeds $10,000 on any day throughout the year. It does not matter if all that money is in one account or if a person had 11 accounts with $1000.00 in each account.  Once your overseas foreign accounts exceed $10,000, it is now time to report all of the foreign accounts. 

You are required to report the maximum balance throughout the year. If you do not have the maximum balance available, you can mark the box that notes the Max balance is unavailable — or alternatively you can use the best value you have, and then note that information on the FBAR.

FATCA

IRS form 8938 is a form developed to ensure individuals with Specified Foreign Financial Assets get into compliance by disclosing their foreign assets and information to the IRS. The form is “average” when it comes to complexity of IRS forms. It generally only requires an individual to identify, list, and report assets and accounts (under certain scenarios) to the IRS.

Please keep in mind that certain items that may need to be reported on other forms such as a FBAR may not need to be included on form 8938. Likewise, certain items that you did not have to report on the FBAR, will need to be reported on form 8938.

FBAR & FATCA Penalties

The penalties for these failing to comply reporting rules are severe. And, the IRS believes you acted willfully or with reckless disregard trying to set up a payment scheme outside of the US in order to avoid reporting, but then do not report properly under the foreign account reporting rules – you could become subject to a 100% in a multiyear audit for the FBAR Alone.

In other words, be careful.

Form 8300 Penalties

As provided by the IRS: You may be subject to penalties if you fail to file a correct and complete Form 8300 on time and you cannot show that the failure was due to reasonable cause. You may also be subject to penalties if you fail to furnish timely a correct and complete statement to each person named in a required report.

A minimum penalty of $25,000 may be imposed if the failure is due to an intentional or willful disregard of the cash reporting requirements.

Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements.

These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

What if I am Out of IRS Compliance?

When you have not met your prior year IRS foreign bank account compliance obligations, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.

What Type of Attorney Should I Hire?

IRS Voluntary Disclosure is a specialized area of law. An IRS Voluntary Disclosure is a complex undertaking. It requires the coordination of several moving parts, including strategy development, Tax Preparation, Legal Analysis, Negotiation and more.

You should hire a Tax Attorney who has the following credentials:

  • ~20 Years of Private Practice experience representing his/her own clients
  • Experienced in Criminal and Civil Tax Litigation
  • Experienced representing clients in Eggshell and Reverse Eggshell Audits.
  • Advanced Tax Degree (LL.M.)
  • EA (Enrolled Agent) or CPA (Certified Public Accountant)
  • Preferably a Board Certified Tax Law Specialist

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)

Our Managing Partner, Sean M. Golding, JD, LLM, EA  earned an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

Less than 1% of Tax Attorneys Nationwide are Board Certified Tax Law Specialists 

The Board Certified Tax Law Specialist exam is offered in many states, and is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. Certification also requires the completion of significant ethics and experience requirements.

In California alone, out of more than 200,000 practicing attorneys (with thousands of attorneys practicing in some area of tax law), less than 350 attorneys are Board Certified Tax Law Specialists.

Beware of Copycat Law Firms

Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.

*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

Contact Us Today; Let us Help You.