May 10, 2004 – Use Form 8300 to follow the money

At some point in every dealer principal class, and in every advanced accounting class I teach, the question comes up about Form 8300. As the discussion develops, I can easily pick out the three types of persons in the room. They are:
1. People who make things happen
2. People to whom things happen, and
3. People who wonder what happened
And the number of persons who are wondering what is happening? About one third.
Think of it. One third of the people who are most involved in dealership reporting have no clue what an 8300 is.
On Oct. 26, 2001, President Bush signed into law the USA Patriot Act that added certain industries to the list of businesses to be watched for control and discovery of money laundering. Banks and most financial institutions were already there, but this act added (you guessed it) motor vehicle dealers to the list. Suddenly, we were sitting at the grown-up’s table, and we were expected to comply just as they were.
Shall we cut to the chase here? Look at the penalties if you do not comply with the law:
“You may be subject to penalties if you fail to file…on time, or if you fail to furnish to each person a timely report of [your] filing. A minimum penalty of $25,000 may be imposed if failure is intentional or willful…”
“Penalties may also be imposed for causing, or attempting to cause…a failure to file or filing a report with a material omission or misstatement of fact, or for structuring a transaction to avoid the reporting requirements.”
“These violations may be subject to criminal prosecution which upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.”
These three statements come from the instructions for Form 8300, page 3 under penalties.
Do I have your attention yet?
This is serious stuff, and the grace period is about over. At first, say, three years ago, I saw “compliance audits” being done by agents. They were polite. They dug, and when they found, they instructed and cautioned. There weren’t any fines, and nobody went to jail. But lately, I am hearing that the nice-nice period is over, and they are taking off the gloves. We have had enough time to learn, and full compliance is expected.
So what is this all about? And what exactly do we have to do?
In a nutshell, here it is: If you receive $10,000 (or more) in cash or cash-equivalent (non-contract cashier’s checks, money orders etc.) from a person or his or her agents, within a rolling 12 month period, you must report that to the IRS on Form 8300, and also report that report to the persons involved.
You should establish a compliance officer in your company responsible for administering this program. You should create a policy statement instructing salespersons not to discuss the cash reporting law with customers at any time or for any reason. All cash reporting inquiries should be referred to the designated compliance person who fully understands all aspects of the cash reporting law.
Copies of form 8300 must be retained by the dealership for five years.
In a motorcycle store this is how it is going to work.
First, you must set up methods of payment in your POS system to track 8300 payments. One will be cash (both US and foreign), of course. But you will need another one for “non-cash Method of Payment (MOP) subject to 8300 Report”. This will included:

  • cashiers checks not issued for contract proceeds
  • money orders
  • bank drafts, and
  • traveler’s checks

Excluded are cashier’s checks issued on payer’s own checking accounts, and personal checks in any amount issued on payer’s personal checking accounts.
Second, you should run a monthly Method of Payment report that sums all 8300 MOP’s by customer name for the previous 12 months. Any customer whose subject payments exceed $10,000 must be issued an 8300.
Third, the 8300 must be filed with the IRS within 15 days of the transaction. The customer must receive notice of the report by Jan. 15 of the following year.
There is a lot more to it, of course, and I recommend that you go to www.irs.gov and get your own copy of the regs.
One more thing. On Page 4 of the instructions, you are told to use Box 1b to voluntarily report a suspicious transaction even if it does not meet the $10,000 requirement. Some CPA’s have renamed this box the “The guaranteed audit” box. But a few dealers I know who have used this box, refer to it rather as the “infuriate your customer and get a knock on the door at midnight” box.
Be careful. Comply with the law. And what if a customer walks out after indirectly confirming that his cash will be reported? That’s OK. You didn’t want his business anyway. Study up on the Butterfly effect. Sometimes the smallest things have great import in the long haul. psb

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