Is your cannabis business ready for an IRS exam? IRS examinations are increasingly focused on IRS Form 8300 reporting requirements. These requirements are the result of USA PATRIOT Act provisions requiring all trades or businesses to report their receipt of more than $10,000 in currency in a single transaction or in two or more related transactions. 31 USC §5331 and 31 CFR §1010.320.
The required currency filing must be made in accordance with IRS Form 8300 instructions. The instructions provide that the form must be mailed to the IRS Detroit Computing Center or electronically filed within 15 days of receipt of the currency. Filers must also provide each person named on its filed Forms 8300 with a specified written statement by January 31 of the year following the calendar year in which the currency was received. The statement must show the name, telephone number, and address of the information contact for the business, the aggregate amount of the reportable cash received, and note that the information was furnished to the IRS.
Cannabis producers, processors, and wholesales are more likely to be subject to Form 8300 filing requirements than retailers. The bulk sale of flower, cannabis concentrates, or cannabis extracts can easily surpass the $10,000 filing threshold. Retail sales limits generally preclude cannabis retailers from receiving more than $10,000 from their customers.
Failing to properly file IRS Form 8300 can have serious repercussions. The filing requirements originated as part of the anti-terrorism and anti-money laundering provisions enacted soon after September 11, 2001. The penalties for failure to comply are serious, including: (a) civil penalties to the entity and its officers, directors, or employees engaged in a willful violation of not more than the greater of the amount involved in the transaction, not to exceed $100,000, or $25,000; and (b) potential criminal penalties that can lead to fines of up to $250,000 and imprisonment for up to five years. 31 USC §§5321 and 5322.
Developing policies and procedures to capture reportable transactions can be difficult. Recipients of currency must also be careful about so-called “structured transactions” or multiple payments exceeding $10,000 related to a single transaction. Reporting is required in all cases where the amount received with respect to a single transaction (or two or more related transactions) made within a 12-month period individually or in the aggregate exceeds $10,000. 31 CFR §1010.330.
The takeaway? Cannabis businesses should develop robust cash handling policies and procedures designed to identify transactions subject to reporting (including structured transactions).