Ever Receive Cash for Cannabis? You Need to Know this…

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Audits and stiff penalties have arisen due to cannabis companies neglecting to properly and promptly file IRS Form 8300s.  There is much more to the story than just filing it when you receive $10,000 cash or more.  Did you know banks are required to log all deposits of $3,000 cash or more?

A known IRS audit trigger for cannabis companies has been the failure to timely file IRS Form 8300.  It’s more intricate than simply filing a Form 8300 when you receive $10,000 or more in cash at once.

Colorado’s cannabis industry found out the importance of timely filing these puppies the hard way.  The IRS has instituted CIP (Compliance Initiative Projects) which are any projects designed to identify, measure or analyze taxpayer noncompliance.  They study or analyze groups of individuals, businesses, specific occupations, industries, geographic areas or specific economic activities or events.  You guessed it, they are gathering data and using it to analyze tax compliance.  The IRS scrutinized the Colorado cannabis industry to identify those failing to properly file 8300’s which became the jumping off point for audits.  Rumor has it that there is a similar IRS initiative in California at present.  We spoke with an accountant for a client’s distributor in the Bay Area just last week, who told us that “nobody in California files 8300’s because they would have to do them all the time.” We reminded him that inconvenience doesn’t change federal law.

Form 8300 is used to report the receipt of payments of more than $10,000 that are comprised of any combination of U.S. currency, foreign currency, cashiers checks, money orders, bank drafts and traveler’s checks – basically cash.  We will go straight to the IRS for the type of payments to report:

Trades and businesses must report cash payments received if all of the following criteria are met:

1. The amount of cash is more than $10,000
2. The business receives the cash as:
   • One lump sum of more than $10,000, or
   • Installment payments that cause the total cash received within one year of the initial payment to total more than $10,000, or
   • Previously unreported payments that cause the total cash received within a 12-month period to total more than $10,000
3. The establishment receives the cash in the ordinary course of a trade or business
4. The same agent or buyer provides the cash
5. The business receives the cash in a single transaction or in related transactions

You must also complete a single Form 8300 and treat two or more transactions with the same party as a single transaction if they total $10,000 or more and occur within a 24 hours period. 

The purpose of the form is to help authorities detect illegal activities such as money laundering, tax evasion, terrorism, etc. The form can be found on the IRS’s website – ensure you are using the current revision, the most recent is 2014: https:// www.irs.gov/pub/irs-pdf/f8300.pdf.

You must file within 15 days of receipt of the payment(s) and can do so online via the BSA E-Filing System of the Financial Crimes Enforcement Network (a.k.a.FinCEN). Here is the link: https://bsaefiling.fincen.treas.gov/main.html.

You must also complete a single Form 8300 and treat two or more transactions with the same party as a single transaction if they total $10,000 or more and occur within a 24 hours period. 

After filing a Form 8300, you must start a new cash count of payments from that buyer and if they total more than $10,000 over the next 12 months, you must file another Form 8300. You are required to keep a copy of Form 8300 for at least 5 years and there are stiff penalties for not timely filing or including all required information, starting at $250 per incident (for errors with a single Form 8300) and climbing depending upon the circumstances. You may also be subject to criminal penalties for willfully failing to adhere to the filing requirements, which can include prison time and massive fines.  If you correct your negligence on Form 8300 within 30 days of its due date, the penalty drops to $50, and if fixed after the 30th day but by August 1st, the penalty is reduced to $100.

Form 8300, line 1 has a checkbox for a “suspicious transaction.” The receiver of cash can voluntarily fill out this form even if the amount does not exceed $10,000. A suspicious transaction is defined as “…a transaction in which it appears that a person is attempting to cause Form 8300 not to be filed, or to file a false or incomplete form.” If a transaction is $9,900 at noon on Friday, then at 12:01 PM on Saturday the same party initiates another $9,900 transaction, it is quite apparent that they are avoiding Form 8300. You may want to check the box (or consult with your attorney as we aren’t giving legal advice), because otherwise you may be complicit in this “structuring” of transactions to avoid Form 8300 and may be subject to civil and criminal penalties. Structuring could be any amount as long as the intent to avoid the Form 8300 is present.

The BSA in “BSA E-Filing System of FinCEN” stands for Bank Secrecy Act. Banks are not required to fill out form 8300 as they adhere to stricter guidelines, which not only require the reporting of over $10,000 but require banks to report “suspicious activity” and “structuring.” Banks are required to maintain an internal log of cash transactions of more than $3,000 so they can identify suspicious activity per these requirements.

IMPORTANT NOTE: On or before Jan. 31 of the following year, you must provide to the customer who gave you the cash a statement with the following information:

•  The name and address of the cash recipient’s business.
• Name and telephone number of a contact person for the business.
• The total amount of reportable cash received in a 12- month period, and
• A statement that the cash recipient is reporting the information to the IRS.

If you are routinely involved in large cash transactions, you will want to get familiar with the IRS’s Form 8300 Reference Guide for more detailed guidance: https://www.irs.gov/businesses/smallbusinesses-self-employed/irs-form-8300-reference-guide.