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| The Basics | There's such a thing as too much cash
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If youve had transactions involving $10,000 or more, you have to tell the IRS about it. Dont be foolish. You could end up in jail.
By Jeff Schnepper
Almost all of my expenses are paid either by check or credit card. The credit cards give me mileage to fly my kids home from college. And only those who hear celestial voices in their heads are brave enough to mail cash.
Good thing. Cash used to be king. Now, its evidence.
I remember when you couldnt have too much cash. Now, if you deposit too much cash in your own bank account, your picture may appear on Post Office walls.
Its really all about drugs -- and terrorists, too. Drugs are sold for cash, at least in my neighborhood (or so my kids tell me). So, if you have a lot of cash, you immediately become suspect as a drug dealer. And terrorists? Well, we know about them.
Cash can get a lot of people into trouble
Heres where it gets tricky. Drug dealers and terrorists arent the only ones who might accept cash. In fact, despite reports to the contrary, a lot of very legitimate business in this country is still done with cash. And, as we start to get all our records together to file our tax returns, its worth pondering the implications of using too much cash in your daily life.
Are you in the business of selling cars or jewelry? Maybe youre a coin or stamp dealer. Wouldnt it be nice to get cash so you dont have to worry about the check clearing? Maybe not.
Congress and the Internal Revenue Service have drafted you in their war against drugs and terrorism. Youre the official snitch. Anytime youre paid too much cash, they want you to report the buyer to the IRS. After all, too much cash makes the buyer a suspected drug dealer.
Now the fun begins. If you fail to report the cash transaction to the IRS, youre assumed to be in cahoots with a bad guy, and you can go to jail for money laundering.
If youre in a business and receive more than $10,000 in cash from a single transaction, or from related transactions within a 12-month period, you have to file Form 8300 and report the buyer to the IRS. Dont file, and you go to jail.
The IRS isnt kidding. I had a client who was a dealer in Corvette sports cars. He told me he didnt have time to file the forms. I told him several times to file. He thought he knew better. He went to jail. So did his children who were involved in the business.
Indeed, operators of used car businesses are likely to be visited by the IRS in search of such big cash transactions.
Who else gets pulled into the web?
Were not done yet. Youre a good citizen and find the time to file the required forms. Now, you deposit the cash into your bank account.
Your bank then has to report the deposit to the IRS. Financial institutions and money-services businesses have to file Form 4789 to report currency transactions in excess of $10,000. Once again, youre the suspect.
Youre a money-service business if you cash checks, transmit money, issue, sell, or redeem money orders or travelers checks. A grocery store that offers these services in addition to its grocery business is a money-service business. The management has to file the forms or enjoy federal hospitality.
Forget about any right to privacy. With the 1986 passage of the Money Laundering Control Act, financial privacy is no longer an issue. The act insulated financial institutions from liability for any release of suspicious transaction activity to a law enforcement official. And the Patriot Act, passed to help the government fight terrorism, is proving useful in other prosecutions.
The law in this case has teeth because a lot of people file the paperwork.
For fiscal 2002, 139,549 Forms 8300 were filed reporting cash purchases in excess of $10,000. That means that cash transactions involving individuals totaled $1.39 billion. That number, however, pales in comparison to the 12.4 million copies of Form 4789 filed by financial institutions reporting currency transactions.
In fiscal 2004, the Internal Revenue Service initiated 1,789 criminal investigations. There were 1,304 indictments and 687 convictions -- and an 89.1% incarceration rate. The average sentence: 63 months.
In fiscal 2005, the IRS started 4,269 investigations, winning 2,406 indictments and 2,151 convictions and an 83% incarceration rate. Average sentence: 42 months.
How to stay out of trouble
What should you do? Heres my advice.
- Clearly recognize when you may be liable to file a snitch report.
- If the report is due, file it.
- If you have any doubts, file the report.
- If a file is filed on you, be prepared to defend your cash accumulation. In other words, keep very good records.
Mind you, Im all in favor of helping our government to get the bad guys. If you suspect any tax fraud activity, you can report it to the IRS tax free at 1-800-829-0433. You can even get a reward by filing Form 211.
Rewards can be paid to anybody other than a current or former federal employee. Even payments to police officers are allowed. And the IRS will refuse to divulge the identity of its informants. But the grant of a reward is fully discretionary with the IRS, and the dollars are taxable if paid.
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