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IRS Urges Businesses To E-File Cash Transaction Reports

Electronic Filing For Businesses

E File form8300In an effort to promote compliance, on February 19, 2019 the IRS urged businesses that are required to file reports of large cash transactions to take advantage of the electronic filing option that was announced on September 19, 2012 by The Financial Crimes Enforcement Network (FinCEN). Under federal law a person who is engaged in a trade or business must file Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or Business) within 15 days after a transaction (IRC 6050I; 26 CFR 1.6050I-1(e); 31 USC 5331;  31  CFR 1010.330). Although businesses still have the option of filing Form 8300 on paper, electronic filing has several benefits. One of the benefits is that electronic filing is convenient and cost effective. It is also a secure way of transmitting sensitive financial information. Similarly, by filing Form 8300 electronically, businesses are able to receive immediate acknowledgement of receipt when filing is completed.

The filing requirement for Form 8300 authorized under Internal Revenue Code Section 6050I pre-dates the enactment of Section 5331 under the Bank Secrecy Act (BSA). Section 5331 enacted in 2001 requires non-financial trades or businesses to file Form 8300. In 2001 Treasury Regulations were issued permitting a single Form 8300 to satisfy both the Title 26 and Title 31 filing requirements.

Who is required to file?

Although the term “person” is defined differently under Titles 26 ad 31, the regulations under both titles expressly incorporate the definition of “person” under Section 7701 of the Internal Revenue Code to include an individual, trust, estate, partnership, association, company or corporation.  The term “trade or business” generally includes any activity carried on for the production of income from selling goods or performing services. It is not limited to integrated aggregates of assets, activities, and goodwill that comprise businesses for purposes of certain other provisions of the Internal Revenue Code. Activities of producing or distributing goods or performing services from which gross income is derived do not lose their identity as trades or businesses merely because they are carried on within a larger framework of other activities that may, or may not, be related to the organization’s exempt purposes.

What payments need to be reported?

While the Internal Revenue Code requires reporting cash receipts, Section 5331 of the BSA requires the reporting of receipts of coins or currency. The definition of “cash” under Treasury Regulation 26 CFR 1.6050l-1 (c) (1) is similar to the definition of “currency” under Title 31.

Under the Treasury Regulations the term “cash” includes:

  • Coin and currency of the United States or any other country which circulates and is accepted as money in the country in which it is issued
  • A cashier’s check, bank draft, traveler’s check or money order having a face amount of not more than $10,000 that is (1) received in a designated reporting transaction, or (2) received in any transaction in the which the recipient knows that the instrument is being used in an attempt to avoid the reporting of the transaction

Under Title 31 the term “currency” is defined to include foreign currency and to the extent provided in the regulations proscribed by the Secretary, any monetary instrument with a face amount of not more than $10,000, except a check drawn on the account of the writer in most financial institutions. 31 CFR 1010.330(c)(1).

While there are stiff civil and, in some cases, criminal penalties associated with failing to file Form 8300, a report issued by the Treasury Inspector General for Tax Administration (“TIGTA”) on September 24, 2018 concluded that the BSA Program has had a minimal impact on compliance. Nevertheless, if you are required to file Form 8300 you should be concerned and take action.

The takeaway here is that the IRS has streamlined the filing process for Form 8300 by permitting electronic filing. By doing so, businesses should take advantage of this process in lieu of paper filing, which remains an option. Those who fail to file Form 8300 may find it difficult to explain the reason for non-compliance in light of the electronic filing option. Failing to file Form 8300 may also create risk particularly where a financial institution has filed a Suspicious Activity Report (“SAR”) in connection with a transaction which should have been reported on Form 8300.  In the event an SAR is filed there is a possibility that you will be identified by the IRS and be subject to their scrutiny. The impetus behind requiring the filing of a cash transaction report is to promote compliance and establish money trails and expose hidden criminal trends and patterns that include money laundering and terrorist financing.

 

 

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FBAR Enforcement:
How and When the IRS Will Act?

The Financial Crimes Enforcement Network, FBAR enforcement and FinCen form. The Report of Foreign Bank and Financial Accounts, (FBAR), is required

How Does the IRS Enforce the FBAR?

The Report of Foreign Bank and Financial Accounts, (FBAR), is required when a U.S. Person has a financial interest in or signature authority over one or more foreign financial accounts with an aggregate value greater than $10,000. If a report is required, certain records must also be kept. In April 2003, the IRS was delegated civil enforcement authority for the FBAR.

Under U.S. law, a “U.S. person” is required to annually file an FBAR and report his or her ownership of or signature authority over certain “foreign financial accounts.”  In general, FBAR reporting is required if the maximum aggregate value of the US person’s foreign financial account(s) exceeded US$10,000 at any time during the calendar year.

FBARs must be e-filed on FinCEN Form 1144 with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) on or before June 30th for the preceding calendar year.

Starting for the tax year 2015, the FBAR will have to be filed by April 15. No extension of time to file is available. Civil penalties for failing to properly file an FBAR range from up to US$10,000 per unreported account for non-willful violations, to the greater of US$100,000 or 50 percent of the account balance per year for a “willful” failure to properly report a foreign account.

Regulatory authority for the FBAR is 31 C.F.R. §§ 103.24 and 103.27. Section 103.32 provides for FBAR records and Section 103.56 tasks the IRS with FBAR enforcement. Section 103.24 states that each person subject to the jurisdiction of the United States (except a foreign subsidiary of a U.S. person) who has a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country must report that relationship to the Commissioner of the Internal Revenue for each year in which the relationship exists. The U.S. person must provide information as specified in the required reporting form.

The authority to enforce the provisions of 31 U.S.C. § 5314 and 31 C.F.R. §§103.24 and 103.32 has been re-delegated from FinCEN to the Commissioner of the Internal Revenue Service by a Memorandum of Understanding (MOU) between FinCEN and IRS. This includes authority to:

  1. Investigate possible civil violations of these provisions;
  2. Assess and collect civil FBAR penalties;
  3. Employ the summons power;
  4. Issue administrative rulings; and,
  5. Take any other action reasonably necessary for the enforcement of these and related provisions, including pursuit of injunctions.

The IRS may waive penalties if the failure to file FBAR was due to reasonable cause.  However, “willful” reporting violations may be subject to criminal penalties, which may be imposed in addition to asset forfeiture or civil penalties.

U.S. persons, as defined by the statute, with unreported foreign bank accounts are increasingly at risk of the IRS and Department of Justice identifying those accounts since the implementation of the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted in 2010 and implemented on July 1, 2014, requires foreign financial institutions worldwide to perform in-depth due diligence and to collect information to identify any US account holders or US beneficial owners of financial assets abroad, and to automatically disclose account information annually to the IRS.

Once that information is disclosed and the IRS learns of a failure to file, the IRS may act to enforce civil and sometimes criminal penalties against the U.S. Person with legal authority or ownership of the foreign financial account.

It is vitally important you seek counsel in dealing with FBAR filing and related issues. Once a U.S. person is under IRS audit or whose non-compliance has been identified by the government, there are no corrective remedies available for FBAR compliance. A US person concerned that the government may view any FBAR errors or omissions as “willful” should engage legal counsel to fully evaluate the facts and circumstances and assess the potential civil and criminal exposure in order to resolve the matter before the IRS gets involved.

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