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Making Large Cash Transactions? Know the Consequences.

Making Large Cash Transactions? Know the Consequences.

Large Cash Transactions May Lead to Back Tax Debt

As the old saying goes, more money, more problems.

And if you’re paying for or getting paid in cash, you could be putting a big X on your back and become an IRS target.

Dealing with cash is convenient. It cuts down on trips to the bank to deposit checks, avoids the wait time required for check deposits made with a smartphone, and most people prefer to be paid with cash anyways.

But businesses are required to report certain large cash payments to the feds. It’s a part of the government’s way to cut down on tax evasion, which amounts to billions of dollars each year.

If you’re a business (or even a college or university) that accepts cash, then any big payments you receive have to be reported to the IRS via Form 8300.

The cash has to be reported if the $10,000 or more is received in one bulk payment or through a combination of related transactions that add up to more than $10,000. Other requirements are that the cash has to be received in the course of trade or business and received from the same payer.

And if you’re the one paying the $10,000 in cash, know that the business receiving it has to report you to the feds. After that happens, it’s a sure bet that the IRS will come knockin’ on your door with the goal of wanting to learn more about your income and to find any tax evasion.

But it’s not just cash payments totaling $10,000 or more that must be reported. This rule also covers certain monetary instruments, like cashier’s checks, traveler’s checks, and money orders. However, personal checks for more than $10,000 aren’t covered by this rule, and wire transfers aren’t considered cash.

Another question people have about cash payments is whether the total must be pre-tax or after-tax. In short, if the sale price is below $10,000, the transaction won’t have to be reported. So if a car or other durable good sells for $9,500 but with tax amounts to $10,750, you’re in the clear.

But while filing the Form 8300 seems like a big enough burden, you’ll also have to notify the payer that you notified the IRS about that customer’s cash transaction. In a world of inconvenient IRS audits, it’s a small, mandatory courtesy to the customer of what could potentially be on the horizon.

And, the Form 8300 allows a business to check a box indicating if it thinks the transaction is suspicious. In fact, while businesses are required to give notice to the customer about its filing a Form 8300, they’re banned from informing the customer that it checked the suspicious transaction box.

Reportable cash transactions include more than just usual one-time purchases. Also included are lease payments (for property or other rentals) and income received in someone’s line of work held in anticipation of providing a service or product in the near future. Also, banks or other financial institutions that receive a deposit of more than $10,000 in cash must submit to the Treasury Department what’s called a Currency Transaction Report.

Paying with cash, or getting paid in cash, is convenient, but it comes with risks that could spur the IRS’s interest and lead to an audit. If that occurs, back tax debt can be right around the corner.

If you’re in that type of situation, check out our website to see how we can help.

We are not a law firm. We employ attorneys, enrolled agents, and CPA’s.

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