IRS Clamps Down on Cash Reporting Abuses

The IRS is proposing new rules to close a door that lets money launderers and tax cheaters avoid being detected by cash transaction reports filed by businesses when the money is spent for expensive cars, antiques, furs, jewelry or other luxury items.

The IRS plans, in certain cases, to treat cashier's checks, bank drafts, traveler's checks and money orders just like cash in deciding if the cash reports -- Forms 8300 -- should be filed. Experience has shown these types of monetary instruments are being used by individuals to avoid the cash reporting requirements.

For example, a taxpayer purchases an $18,000 diamond ring from a jewelry store by using a $9,000 money order and $9,000 in cash. Under existing rules the jewelry store is not required to file a Form 8300 because the cash received is not more than $10,000. The proposed new rules would treat the money order as cash, so the jewelry store is required to file a Form 8300.

Form 8300 is required to be filed with IRS by any business that receives more than $10,000 in cash in a single transaction or two or more related transactions. This information reporting requirement was added to the law in 1984 to help the IRS locate people who are hiding income from illegal activities, such as drug trafficking. The information from Forms 8300 is contained in a computer data base that can be accessed by IRS examiners, revenue officers and criminal investigators.

According to the IRS, businesses have filed 107,000 Forms 8300 since 1985, the first year the filing was required. For the last three years filings have averaged about 23,000 a year. Still the IRS believes compliance with the reporting requirements is low and is attempting to educate the business community to their responsibilities. At national and local levels, the IRS is working with associations of business persons most likely to deal in large cash transactions, such as automobile dealers, boat dealers, jewelers and realtors.

In recent months the IRS has conducted Form 8300 compliance checks in Florida, Alabama, Arkansas, North Carolina, South Carolina, California, Georgia, Mississippi, New York, Texas, Louisiana and Washington. As a result almost 1,700 failure-to-file penalties have been asserted totaling $227,000. The IRS will be conducting similar compliance drives in other areas of the country this year. The IRS advised businesses that failure to comply with these reporting requirements can result in civil and criminal penalties.

The proposed expanded Form 8300 reporting requirements appeared in regulations released by the IRS, May 13, 1991. These new rules are proposed to be effective 60 days after final regulations are issued.

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