IRS Rule 8300 for Dealers and F&I Managers
Article Title: Business Man to Business Man, … business is Good!
Subtitle: How Form 8300 works in the Real World
“Mr. Justin, I want to buy that two year old Range Rover for my girlfriend. Can we talk privately?” Marshal asked me, in a confident whisper and somewhere between a request and a demand. “Certainly Marshal, come on in my office.” I sat down behind my desk as Marshal sat across from me sitting upright on the front of his chair. He made his case, “Mr. Justin, business man to business man, business is good…” he looked straight in my eyes with certainty, without a blink, he continued “… and business is getting better.”
Now I wasn’t exactly sure what business Marshal was in, but I did suspect it might be a creative and a cash business. I also knew that Marshal’s girlfriend had bought three, very inexpensive vehicles from me over an eighteen month period and paid them off very quickly. In fact, she once paid off a $9,000 minivan in about three weeks.
“Marshal,” I began with equal certainty, “you and your girlfriend are great customers. I appreciate your business. But you have no established credit, in fact, your credit history has sum bumps. I’ve financed her last three vehicles through my in-house finance company because you have established good payment and credit history in your previous purchases, but it’s going to be very difficult for me to find a lender that will approve you on a $70,000 Rover. I’m just telling you we might hit some roadblocks but I can submit your application to a couple of my lenders and see what their call is.” I continued, “Historically, you have put down $1,000 on the vehicles you have purchased from me, we are probably going to need more down payment, what are you working with?” Marshal leaned all the way back in his chair, to a slouch and put both of his hands up as to ask a question, “I’ve got $15,000 in my car, cash.” He said the word “CASH” like that helped anyone. It actually made things more complicated in several respects.
Assuming I could get the deal bought, and prove employment, residence and, oh yes, I had to deal with his $15,000 in cash. The law requires that dealerships report cash payments of more than $10,000 to the federal government by filling IRS/FinCEN Form 8300.
The information contained in the form assists law enforcement in its anti-money laundering efforts. When dealerships comply with the reporting laws they provide authorities with an audit trail to stop tax evasion, drug dealing, terrorist financing and other criminal activities.
What types of payments do you need to report? Well, you might not understand all of the conditions, so here they are:
The amount of cash is more than $10,000 and dealership 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
The dealership receives the cash in the ordinary course of a trade or business
The same agent or buyer provides the cash
The dealership receives the cash in a single transaction or in related transactions
Something rarely reviewed in the dealership is what the definition of cash actually is. Cash includes the coins and currency of the United States and a foreign country. Cash may also include cashier’s checks, bank drafts, traveler’s checks, and money orders with a face value of $10,000 or less, if the dealership receives the instrument in:
A designated reporting transaction (as defined below), or
Any transaction in which the business knows the customer is trying to avoid reporting of the transaction on Form 8300.
Example: Isac Bell purchases a used car from Big Daddy J’s Auto Sales for a total of $12,000. He pays with a cashier’s check having a face value of $12,000. The cashier’s check is not treated as cash because its face value is more than $10,000. The business does not need to file Form 8300.
In my company, Automotive Reinsurance Concepts, the F&I Managers and owners we work with everyday often cannot answer the following question correctly, what does “CASH” not include, can you?
Cash does not include:
Personal checks drawn on the account of the writer
A cashier’s check, bank draft, traveler’s check or money order with a face value of more than $10,000.
When a customer uses currency of more than $10,000 to purchase a monetary instrument, the financial institution issuing the cashier’s check, bank draft, traveler’s check or money order is required to report the transaction by filing FinCEN form 104, Currency Transaction Report.
So what would be considered a “related transaction”?
The law requires dealerships report transactions when customers use cash in a single transaction or a related transaction. Related transactions are transactions between a payer, or an agent of the payer, and a recipient of cash that occur within a 24-hour period. If the same payer makes two or more transactions totaling more than $10,000 in a 24-hour period, the dealership must treat the transactions as one transaction and report the payments. A 24-hour period is 24 hours, not necessarily a calendar day or banking day.
Example: Big Daddy J’s Auto Sales sells a motorcycle for $9,000 in cash to Cory Collins at 10 a.m. During the afternoon on the same day, Mr. Collins returns to buy another motorcycle for his son and pays $9,000 in cash. Since, both transactions occurred within a 24-hour period, they are related transactions, and the motorcycle dealer must file Form 8300.
Transactions are related even if they are more than 24 hours apart when a dealership knows, or has reason to know, that each is a series of connected transactions.
Taxpayer Identification Number (TIN)
A dealership must obtain the correct TIN of the person(s) from who they receive the cash. If the transaction is conducted on behalf of another person or persons, the dealership must also obtain the TIN of that person or persons. Failure to include all required information or inclusion of incorrect information, on Form 8300, may result in civil or criminal penalties. However, a filer may be able to avoid penalties when the customer refuses to provide a TIN by showing that its failure to file is reasonable under circumstances more fully described in 26 CFR 301.6724-1(e) and (f).
Under the filling exception as described in Publication 1544, a filer is not required to provide the TIN of a person who is a nonresident individual or foreign organization. However, name and address verification is required, and the source of the verification must be included in item 14 of Form 8300. For nonresident aliens, acceptable documentation would include a passport, alien registration card or other official document.
Reporting Suspicious Transactions
There may be situations where the dealership is suspicious about a transaction. A transaction is suspicious if:
It appears that a person is trying to prevent the dealership from filling form 8300,
It appears that a person is trying to cause the dealership to file a false or incomplete Form 8300, or there is a sign of possible illegal activity.
The dealership may report suspicious transactions by checking the “suspicious transaction” box (box 1b) on the top line of Form 8300. Dealerships may also call the IRS Criminal Investigation Division Hotline at 800.800.2877, or the local IRS Criminal Investigation unit to report suspicious transactions. If the dealership suspects a transaction is related to terrorist activity, the business should cal the Financial Institutions Hotline at 866.556.3974.
The dealership may voluntarily file a Form 8300 in those situations where the transaction is $10,000 or less and suspicious. Because the Form 8300 is not required in those situations, there is no requirement to send a statement to the payor.
When to Report Payments
The amount of cash a customer uses for a transaction and when the customer makes the transaction are the determining factors for when the dealership must file the Form 8300. Generally, a business must file Form 8300 within 15 days after they receive the cash. If the 15th day falls on a Saturday, Sunday, or holiday the dealership must file the report on the next business day.
In some situations, the payer may arrange to pay in cash installments. If the first payment is more than $10,000, a dealership must file Form 8300 within 15 days. If the first payment is not more than $10,000, the dealership adds the first payment and any later payments made within one year of the first payment. When the total cash payments exceed $10,000, the business must file Form 8300 within 15 days.
After a dealership files Form 8300, it must start a new count of cash payments received from that buyer. If a business receives more than $10,000 in additional cash payments from that buyer within a 12-month period, it must file another Form 8300 within 15 days of the payment that causes the additional payments to total more than $10,000.
If the dealership must file Form 8300 and that same customer makes additional payments within the 15 days before the business must file Form 8300, the business can report all the payments on one form.
Example: On January 10, a customer makes a cash payment of $11,000 to Big Daddy J’s Auto Sales. The same customer makes additional payments on the same transaction of $4,000 on February 15, $5,000 on March 20, and $6,000 on May 12. By January 25th (fifteen days from January 10), Big Daddy J’s must file Form 8300 for the $11,000 payment. By May 27 (fifteen days from May 12), Big Daddy J’s must file another Form 8300 for the additional payments that total $15,000.
Where to File Form 8300
Businesses can file Form 8300 electronically using the Bank Secrecy Act (BSA) Electronic Filing (E-Filing) System. E-filing is free and is a quick and secure way for individuals to file their Form 8300s. Businesses can also mail the Form 8300 to the IRS at:
IRS Detroit Computing Center
P.O. Box 32621 Detroit, MI 48232
Required Written Statement for Customers
When the dealership is required to file a Form 8300, the law requires the dealership to provide a written statement to each person(s) named on Form 8300 to notify them the dealership has filed the form. This requirement to provide a written statement does not apply with respect to a Form 8300 filed voluntarily, including a Form 8300 to report a suspicious transaction involving less than $10,000.
The statement must include the following information:
The name and address of the crash recipient’s business,
Name and telephone number of a contact person for the business,
The total amount o reportable cash received in a 12-month period, and
A statement that the cash recipient is reporting the information to the IRS.
A dealership should keep a copy of every Form 8300 it files, and the required statement it sent to customers, for at least five years from the date filed.
Yes, your dealership can get into big-time trouble if you do not follow the law. Dealerships may be subject to civil AND criminal penalties for noncompliance with the law.
For returns due to be filed on or after January 1, 2016: Civil penalties and applicable rules are:
The penalty for negligent failure to timely file, to include all retired information or to include correct information is $250 per return, not to escaped $3,000,000 per calendar year. IRC Section 6721 (a)(1).
For persons with average annual gross receipts of not more than $5,000,000, the ceiling is $1,000,000. The penalty applies to each return. IRC Section 6721(d)(1)(A).
If any failure to file under IRC Section 6721 (a) is corrected on or before the 30th day after the required filing date, the penalty is reduced to $50 in lieu of $250 and the maximum amount imposed shall not exceed $500,000 per calendar year. IRC Section 6721 (b)(1). The ceiling is $175,000 for persons with average annual gross receipts of not more than $5,000,000. IRC Section 6721 (d)(1)(B).
The penalty for international disregard of the requirement to timely file or to include all required information, or to include correct information is the greater of: (1) $25,000 or (2) the amount of cash received in the transaction, not to exceed $100,000 (with no calendar year limitation applicable). The penalty applies to each failure. IRC Section 6721 (e)(2)(C).
The penalty for negligent failure to furnish a timely, complete, and correct notice to the person(s) retried to be identified on the Form 8300 is $250 per statement, not to exceed $3,000,000 per calendar year. IRC Section 6722(a)(1). For personas with average annual gross receipts of not more than $5,000,000 the ceiling is $1,000,000. IRC Section 6722 (d)(1)(A).
If any failure to furnish described in IRC 6722(a) is corrected within 30 days, the penalty is $50 in lieu of $250, and the ceiling is $500,000. IRC 6722(b). For persons with gross receipts of not more than $5,000,000 the ceiling is $175,000. IRC 6722 (d)(1)(B).
If any failure described in subsection (a)(2) is corrected after the 30th day referred to in paragraph (1) but on or before August 1 of the calendar year in which the required filing date occurs the penalty is $100 in lieu of $250, and the ceiling is $1,500,000. IRC 6722(b)(2). For persons with gross receipts of not more than $5,000,000 the ceiling is $500,000. IRC 6722(d)(1)(C).
Intentional disregard of the requirement to furnish timely, correct, and complete notices is $500 per failure or, if greater, 10 percent of the aggregate amounts of the items retried to be reported correctly (with no calendar year limitation applicable). IRC Section 6722(e).
A person may be subject to criminal penalties for:
Willfully failing to file a Form 8300,
Willfully filing a false or fraudulent Form 8300,
Stopping, or trying to stop, a Form 8300 from being filed, or
Setting up, helping to set up, or trying to set up a transaction in a way that would make it seem unnecessary to file Form 8300.
Any person retried to file From 8300 whoo willfully fails to file, fails to file timely, or fails to include complete and correct information is subject to criminal sanctions as a felony under IRC Section 7203. Sanctions include a fine up to $25,000 ($100,000 in the case of a corporation), and/or imprisonment up to file years, plus the costs of prosecution.
Any person who willfully files a Form 8300 which is false with regard to a material matter may be fined up to $100,000 ($500,000 in the case of a corporation), and /or imprisoned up to three years, plus the costs of prosecution. IRC Section 7206(1)
The penalties for failure to file may also apply to any person (including a payer) who attempts to interfere with or prevent the seller (or business0 from a filing a correct Form 8300. This includes any attempt to structure the transaction in a way that would make it seem unnecessary to file Form 8300. “Structuring” means breaking up a large cash transaction into small cash transactions to disguise the true amount o cash involved in the transaction.
Oh, … what ended up happening with Marshal? Had I obtained approval and sold him the Rover, I would have had to fill out a FORM 8300 and submit it. Unfortunately we couldn’t get him approved for an indirect loan on the Rover…