Taxpayer asks:
I own a number of buildings that I rent out. One of my tenants bounced a bunch of checks so I made him pay it all back to me in cash. My accountant told me that I should report the cash payments separately to the IRS since they are more than $10,000. Is he for real?
Taxgirl says:
Yep, he’s for real. What he’s talking about is a federal form 8300, downloadable as a pdf here.
You file a form 8300 any time that you receive cash in the amount of $10,000 or more from a single source as part of one transaction or a series of related transactions during the course of business. Cash would include bills and coins from any country, a cashier’s check, bank draft, traveler’s check, or money order. Personal or business checks are not considered cash.
For purposes of the form 8300, a business would consider cash received for sales of goods or services and rental payments, just to mention a few. In this case, the amounts owed to you constitute debt repayment, which is also considered a reportable transaction.
The threshold of $10,000 can be met by one lump sum or a number of payments received as part of a single transaction (or two or more related transactions) that cause the total cash received within a 12-month period to total more than $10,000.
A business must file form 8300 within 15 days after the date the cash exceeds the $10,000 amount. If it’s a lump sum, then 15 days after the lump sum is received. If it is a series of transactions, file the form 8300 when the total amount paid exceeds $10,000. Also, note that each time the total payments exceed $10,000 the business must file another form 8300.
After you submit the form, you have to notify the payor (in your case, the tenant), in writing, that you have filed by January 31 of the next calendar year.
Some exceptions to the cash transactions rule apply – though they don’t fit your circumstances as you’ve outlined here. For example, a transaction occurring entirely outside the United States would be exempt from reporting requirements, as would a transaction that is not related to your trade or business. If you’re not sure whether you’re covered under an exception, check with your tax pro. It sounds like, in your case, your accountant is pretty sure that you have to file.
Don’t skip out on submitting the form if you’re required to do so. The penalties for not submitting the form are pretty harsh, including a minimum penalty of $25,000 per missed form for an intentional or willful disregard to file.
It’s a pretty onerous reporting requirement, so what gives? According to the IRS, drug dealers and smugglers often use large cash payments for purposes of money-laundering. By requiring taxpayers to report these payments, the feds can keep track of large sums of cash that circulate through the economy (banks also have reporting requirements on their end). The laws were broadened in 2001 as part of the Patriot Act to help trace money that might be used in terrorist activities.
Of course, it should go without mentioning that these transactions must still be reported on your regular tax return if they constitute income (in your case, it certainly does). But I’m sure that’s no problem since you’re already reporting these… right?
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
I agree…few folks really know that this is required. People often are aware that the banks are required to notify, but most are not aware that individuals have the same requirements. Unfortuantely, this form does not get completed as much as it should.
People rarely complete the form and even many CPAs are not aware of it. I have rarely come accross it myself. We should use it more, but in reality not many folks will encounter this issue in their lifetime.
Make sure that if you are required to file the form you get it done. I have heard of people not filing (mostly because they didn’t know). Don’t make the same mistake.
People just don’t realize that this is required of them. I think that many CPAs and tax professionals don’t even know about it. It doesn’t hurt to educate yourself!