Are Your Cash Reporting Policies In Compliance?

By: Keith Whann
Whann & Associates, LLC

With the regulatory climate being what it is in the motor vehicle industry, there is no time like the present to think about auditing your dealership’s cash reporting policies.  As some motor vehicle dealers are discovering, failing to comply with the Cash Reporting Rules can be costly.  One dealer that was audited by the Internal Revenue Service (IRS) to determine compliance with the Rules was notified that the dealership owed more than $236,000 in fines and penalties for 10 non-reported cash transactions.  Remember, failing to report cash transactions involving $10,000 or more is not only a violation of the Internal Revenue Code, but also the USA Patriot Act.

On October 26, 2001, following a flurry of legislative activity that occurred in the wake of the September 11th terrorist attack on the United States, the President signed the Patriot Act into law making a number of amendments to the anti-money laundering provisions of the Bank Secrecy Act and the Money Laundering Control Act of 1986.  The amendments were intended to make it easier to detect, prevent, and prosecute international money laundering activities and the financing of terrorism.  One of the requirements under the USA Patriot Act is the reporting requirement adopted pursuant to Section 365 of the Act.  Pre-existing laws required financial institutions to file a Currency Transaction Report (CTR) with the Financial Crimes Enforcement Network (FinCEN) whenever they received large sums of money in one or a series of related transactions.  Section 365 of the USA Patriot Act expanded the scope of entities required to file reports to include “anyone” engaged in a trade or business that receives more than $10,000 in cash in one transaction (or two or more related transactions).  Section 365 also requires financial institutions to establish procedures that enable employees to track all cash transactions to determine when a report should be filed and prohibits anyone from structuring a transaction to avoid the cash reporting requirements. 

The Form used to report such transactions, titled “IRS Form 8300/FinCEN Form 8300,” is virtually identical to the IRS Form 8300 that motor vehicle dealers are required to complete pursuant to a similar provision under the Internal Revenue Code.  After enactment of the Patriot Act, the IRS issued a Rule amending its regulations to clarify that the information reported to the IRS on cash transactions is also required to be reported to FinCEN.  Motor vehicle dealers were required to begin using the new Form as of January 1, 2002. 

In order to comply with the Form 8300 filing requirements, it is important to understand how the term “cash” is defined for purposes of reporting.  The term “cash” means U.S. and foreign currency in excess of $10,000.  It also includes a cashier’s check, money order, bank draft, or traveler’s check having a face amount of $10,000 or less when two or more are presented or when it is combined with cash so that the total amount exceeds $10,000.  The term “cash” does not include a personal check, a check drawn on the account of a business, certified personal and business checks, and amounts charged to a credit card are not considered cash.

If the dealership receives $10,000 or more in cash, the Form 8300 should be filed by the 15th day after the date the cash was received.  If the due date falls on a Saturday, Sunday or legal holiday, it should be filed on the next business day.  If a dealership receives more than one cash payment for a single transaction or for related transactions, it must report the multiple payments if it receives a total amount that exceeds $10,000 within any 12-month period within 15 days of the date the dealership receives the payment that causes the total amount to exceed $10,000.  Keep in mind that filing the Form 8300 is not the dealership’s only obligation; it is also required to give a written statement to each person named on a required Form 8300 on or before January 31st of the year following the calendar year in which the cash is received.  The statement must show the name, telephone number and address of the information contact for the dealership, the aggregate amount of reportable cash received, and that the information was furnished to the IRS.

Given the current political climate regarding tax reform and preventing terrorism, enforcement in this area has likely just begun.  The dealership may be subject to penalties if it fails to timely file a correct and complete Form 8300 or it fails to furnish a correct and complete statement to each person named in a report and it cannot show that the failure was due to reasonable cause.  Therefore, it is important that motor vehicle dealers develop a written policy that explains how cash transactions involving $10,000 or more will be handled and provide ongoing training programs for its employees.  In addition, the dealership should implement auditing procedures to ensure that it remains in full compliance with the filing requirements.  If you discover that a cash transaction has not been properly reported, you can file the Form 8300 late.  Filing late may result in some fines and penalties, but they are insignificant compared to the fines and penalties the dealership may incur for not filling at all, which include fines of up to $500,000 for corporations, seizure of assets and, in some cases, imprisonment for up to five years.

The information contained herein has been provided by Keith Whann of the Law Firm of Whann Associates, LLC, and is for general information purposes only.  You should contact legal counsel for specific application.