The cannabis business is busier than ever and with all the forms and paperwork required to run and maintain a successful business, one important tax form is often overlooked.
According to the Internal Revenue Code and the Bank Secrecy Act, people engaged in a trade or business must complete and file a Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or Business) any time the business receives more than $10,000 in cash in a single transaction (or two or more related transactions) in the course of business.
What is Cash?
Cash obviously includes the coins and currency of the United States and any foreign country.
But for purposes of Form 8300, cash may also include: cashier’s checks that are not issued with a remitter’s name; or bank drafts, traveler’s checks and money orders with a face value of $10,000 or less.
By contrast, cash does not include: personal checks drawn on the account of the writer; a cashier’s check with the remitter’s name; or a bank draft, traveler’s check or money order with a face value of more than $10,000.
When to File the Form
The first step is figuring out when your business is legally required to complete and file Form 8300, and that depends on the date the payment is received. Cash payments of more than $10,000 must be reported, with a Form 8300 to be completed and filed within 15 days after receiving such payment. If the 15th day falls on a weekend or legal holiday, then the due date is delayed until the next day that is not a Saturday, Sunday or legal holiday.
Multiple Payments’ Trigger
Many businesses incorrectly think the filing requirement does not apply to them if they have not received a single cash payment totaling $10,000 or more. Not so. The reporting requirement is triggered by the amount of the “transaction,” which, according to the Internal Revenue Code, includes any single transaction of $10,000 or more, as well as multiple cash installment payments totaling $10,000 or more.
For example, if the first payment of the transaction is not more than $10,000, the business must add any later payments made by the same purchaser within one year of the first payment. Once the cash payments total $10,000 or more, the business has 15 days to complete and file a Form 8300. Therefore, any cannabis businesses that have installment contracts for supplies must aggregate such payments over the course of the year to determine whether a Form 8300 has to be filed for the contract.
Payments During Filing Period
After the business completes and files the Form 8300, the count restarts, and any additional payments totaling $10,000 or more are subject to the same filing requirements. However, if a business is already required to complete and file a Form 8300 and receives additional payments within the 15-day period, the business is permitted to report all of the payments in one single form.
Where to File
Businesses that are required to complete Form 8300 have two options on how to file: a) mail the form to the address given in the instructions on the form; or b) file the form electronically using FinCEN’s BSA E-Filing System.
Additional Filing Requirements
In addition to completing and filing the Form 8300, IRC Section 6050I(e) requires any person who files a Form 8300 to furnish a single, annual written statement to each person identified on the form by January 31 of the next calendar year. This filing notifies the customers who made the cash payments to the respective business that the business has reported the transactions to the IRS.
Penalties for Non-Compliance
Businesses that fail to complete and file a Form 8300 for qualifying transactions may be subject to civil and criminal penalties. The IRS lists the applicable civil penalties on its website, with specific information depending on the reporting year at issue. Civil penalties can range from $100 to $270 per return with certain restrictions. Criminal penalties for persons and businesses who willfully fail to file a complete and accurate Form 8300 include sanctions and fines ranging from $25,000 to $500,000, depending on the type of non-compliance and the type of business entity.
Cannabis businesses that regularly transact in cash need to strongly consider creating an internal policy to ensure that Form 8300 is regularly completed and filed based on the specifications noted above. Establishing such policies and procedures will help a cannabis business maintain clear and accurate records, while also ensuring compliance with federal reporting requirements.
Malcolm S. McNeil, Justin A. Goldberg and Kailey J. Walsh are attorneys at the law firm Arent Fox. McNeil is the co-leader of the firm’s international practice and focuses on litigation, business and transactional matters involving international clients. Goldberg is an associate who works in the corporate and securities group. Walsh is an associate who handles various business, commercial and litigation matters.