The IRS is the arm of the Treasury Department that collects funds payable to the government.
As a taxpayer, you’re required to report your income and also pay taxes voluntarily.
However, Uncle Sam won’t just take the word of your taxable income.
Through Form W-2, you record your income earned through wages, while the Form 1099 provides the IRS with non-wage income information.
This information ensures that the Treasury Department has accurate records of your payments and the revenues it receives.
But many businesses–including art galleries, boat and car dealerships, and antique merchants among others–receive large cash payments.
Additionally, nonprofit businesses such as colleges and hospitals deal with large cash transactions.
Form 8300 provides the Treasury with information about these large cash transactions.
According to FinCEN, there were approximately 200,000 submissions of Form 8300 in the year 2011.
As from the year 2012, the IRS made e-filling of Form 8300 available which is free of charge.
Report Cash Payments Exceeding $10,000
If you or your business has received a cash payment of over $10,000, the Federal law requires that you file Form 8300 within a span of 15 days after receiving the receipt.
These transactions should also be received after business with an agent or a single payer.
You are also expected to file form 8300 after a suspicious transaction of any amount exceeding $10,000.
After filing Form 8300, this information is entered into the FinCEN (Financial Crimes Enforcement Network) database.
This information is then cross-referenced with other information from the database.
The Treasury uses this information to create a money trail that is traceable and helps to detect any criminal activities.
When you file form 8300, you provide the IRS and FinCEN with tangible records of large cash transactions.
Requirements when Filing Form 8300
Failing to file Form 8300 within 15 days after you receive the funds will lead to you or your business being penalized by the IRS.
Additionally, failing to file on time will result in a $100 penalty for each occurrence.
In case your business generates less than $5 million annually, the maximum amount in penalties you can pay the IRS is $500,000.
However, if you file within the first 30 days, the maximum penalty will drop to $75,000.
If you deliberately fail to file form 8300, your business may incur a higher financial cost.
The standard penalty imposed by the IRS is $25,000.
Some of the other requirements you should know about include:
- Inform the customer: When filing Form 8300, you’re required by law to provide a written statement to all individuals named on the form to notify them that your business has filed the form.
- Identity of the person from whom you received the cash from: This should include the person’s name, contact information, and address.
- The identity of the person on whose behalf you conducted the transaction: If you own a business and a specific employee handles such a transaction, you should include their information, plus their name and their employee ID.
- The name of the business that received the funds: You should include the business name, nature of the business, address, employee ID and their SSN. Whether you’re the business owner or an employee, you should also include your signature.
- Give descriptions of the transaction and the mode of payment used: Here, you will be required to include the exact amount received and the method of payment used in the transaction. There are boxes in this section of the form that you can check.
Consequences of Failing to Include Full Information
You are required by the IRS to include the full names and TIN of all individuals involved in transactions that exceed $10,000 on Form 8300.
In the event that you receive a payment, and the other individual withholds some information such as their TIN, you are expected to file Form 8300 and include a statement that details your efforts to obtain that information.
You should also have legitimate records that prove you attempted to get the needed information.
If you fail to include all the information required in Form 8300 or willingly include incorrect information, you may be fined $100 per each violation.
If you deliberately fail to include the required information, the IRS may impose harsher penalties on you.
You may have to pay $250 for each incidence or a 10 percent penalty of the total annual amount of all the items that should have been reported.
Always remember that there is no limitation on the penalties.
How to Avoid Problems with the IRS when Filing Form 8300
Now that you know the penalties of errors while filing Form 8300 or failing to file, you need to know how to avoid such problems.
Here are some tips to help keep you away from the IRS investigators and the auditor’s office.
- File within the first 15 days after the transaction: Don’t postpone filing Form 8300 by telling yourself that you’ll file all forms at the end of the week before you join your friends at happy hour. Time flies, and you may start receiving penalty letters sooner than you thought.
- File online: From 2012, the IRS introduced a free of charge online system that you can use to file Form 8300. Just visit their website, and you’ll be redirected to the FinCEN site where you’ll fill out the form.
- Keep copies of all transactions for the last five years: While we recommend that you do this, it’s a regulation that is authorized by the IRS. You should have a folder where you can store all printed Forms in it. Although the IRS is cautious when it comes to keeping records, and they are approximately 99 percent on track, there is still a probability that some documents may get lost in the shuffle.
Which Funds Should Be Filed in Form 8300?
While the definition of cash may be obvious, wire transfers which can be accessed readily in cash aren’t considered as cash, and you don’t need to file them on Form 8300.
Funds that are considered cash when filing Form 8300 include:
- Cashier’s checks
- Traveler’s check
- Money orders
- Bank Drafts
What the IRS Considers as a Transaction
Some financial transactions, such as sale or rent of a tangible and intangible property that may exceed $10,000 are considered as transactions.
Exchanges that involve loan repayments, contributions to escrow or trust funds, and conversion of cash to bonds or checks also count.
Additionally, the IRS considers any exchange that takes place within less than 24 hours as a transaction that should be filed in Form 8300.
You don’t need to file cash donations if you run a tax-exempt charitable organization. You also aren’t required to file sale proceeds if your business has tax-exempt status.
However, if your business receives a donation with cash in excess of over $10,000, then you should report having received such funds.
For example, a hospital should report having received donation amounts greater than $10,000 in cash.
How to File Form 8300
There are two main ways that you can use to file Form 8300.
You can choose to fill the paper copy and mail it to the International Revenue Service, Detroit to the office of the Computing Center, P.O. BOX 32621, Detroit, MI 48232.
After mailing your Form 8300, remember to send it certified so that you have proof that you filed it on time.
You can also file Form 8300 online through the FinCEN’s electronic filing system which you can access through the IRS website.
You can also access it here.
Regardless of whether you mail your Form 8300 or you file online, always remember to keep a copy of what you filed.
What to Do After Being Penalized by the IRS But You’re Unable to Pay
If you fail to file your Form 8300 or make errors when filing, you’ll face penalties.
The IRS knows everything about you, from where you live to who you’re married to and where you work.
This means that you’ll have nowhere to hide when the IRS comes looking for you.
Therefore, before the IRS freezes your bank accounts and garnishes your wages, and before you decide to pack your bags and leave, consider the following options.
Form 8300 Audit Reconsideration
If the worse comes to the worse and you’re faced with harsh penalties after an IRS audit, but you disagree with the outcome, you can ask for an audit reconsideration.
Ensure that you make the request before you pay the penalties you’re disputing.
The IRS will respond to your request within 30 days, but sometimes you may have to wait longer.
Keep in mind that penalties could continue to accumulate within this time.
Therefore, if you’re experiencing financial hardship due to the delays in processing your audit, you may request the IRS to expedite your request.
Offer in Compromise
In the case the IRS denies your request for audit reconsideration, you can still ease your financial burden.
If you’re not in a situation to pay your debt to the IRS, you can request for an Offer in Compromise which will settle your penalties for a fraction of what you owe.
However, the IRS only accepts a small number of Offers in Compromise, and you may need an expert to offer you with sound financial advice to help you improve your odds.
Penalty Abatement
Under some unique circumstances, you can request a penalty abatement, which will waive all your penalties.
The IRS only approves requests for penalty abatement when there’s reasonable cause or after an administrative waiver.
To request the IRS for tax and penalty abatement, you should file Form 843, along with all documentation that may support your request.
Conclusion
A common misconception about Form 8300 is that it should be filed before the end of the year.
But in reality, it should be done after 15 days from the date of the transaction.
After filing your Form 8300, the financial institution where you make the cash deposit of over $10,000 will also file a Form 4789.
The IRS closely monitors discrepancies between Forms 8300 and Forms 4789 which may indicate a violation of reporting laws.
Due to the increased cases of money laundering and compliance with the Patriot Act, the IRS has now increased its number of audits on Form 8300.
If an IRS auditor concludes that you willfully or intentionally disregarded any of the cash reporting requirements, you will be penalized for each violation.
Form 8300 compliance is an important regulatory problem that faces most individuals and businesses today.
If you are not carefully complying with Form 8300 requirements, you may face harsh federal penalties.
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