While everyone in the cannabis business is focused on Internal Revenue Service enforcement of IRS Code 280e, the Internal Revenue Service has found another weapon in their battle to squeeze as much money as possible out of businesses that operate in the cannabis space, IRS Form 8300.
These IRS Form 8300 audits have until now been primarily focused on businesses operating in the Denver area, but as they gain success in assessing penalties and fines against cannabis and marijuana related businesses, they will undoubtedly start auditing cannabis and marijuana related businesses that operate in other states.
Who has to file form 8300?
A business that receives cash payments is required by the Internal Revenue Service to file form 8300 if all of the following conditions happen:
1. The amount of cash received by the business is more than $10,000
2. The cash is received by the business as:
• A lump sum payment of over $10,000, or
• Installment payments received within one year from the initial payment end up totaling more than $10,000, or
• Any previously unreported payments that cause the total cash received within a consecutive 12-month period to total more than $10,000
3. The establishment receives the cash in the ordinary course of business or trade
4. The same agent/buyer/entity is providing the cash payments
5. The business receives the cash in a single transaction or in related transactions
What does the IRS consider to be cash?
Cash includes coins and currency of the United States or a foreign country. Cash may also include cashier’s checks, bank drafts, traveler’s checks, and money orders with a face value of $10,000 or less, if the business receives the instrument in:
• Any transaction in which the business knows the customer is trying to avoid reporting of the transaction on Form 8300 – (Removing some money to be under the $10,000 reporting limit, for example – if a payer does this, you still must file IRS Form 8300).
What are the penalties for not filing IRS Form 8300?
Businesses may be subject to civil and/or criminal penalties for noncompliance with the law (non-filing/late filing of IRS Form 8300).
For returns due to be filed on or after January 1, 2016:
• The penalty for failure to timely file, to include all required information or to include correct information is $250 per return, not to exceed $3,000,000 per calendar year. **For persons with average annual gross receipts of not more than $5,000,000, the ceiling is $1,000,000.**
• The penalty for intentional disregard of the requirement to timely file or to include all required information, or to include correct information is the greater of: (1) $25,000 or (2) the amount of cash received in the transaction, not to exceed $100,000 (with no calendar year limitation applicable). **The penalty applies to each failure to file IRS Form 8300.**
• Intentional disregard of the requirement to furnish timely, correct, and complete notices is $500 per failure or, if greater, 10 percent of the aggregate amounts of the items required to be reported correctly (with no calendar year limitation applicable). IRC Section 6722(e).
A person may be subject to criminal penalties for:
• Willfully failing to file a Form 8300,
• Willfully filing a false or fraudulent Form 8300,
• Stopping, or trying to stop, a Form 8300 from being filed, or
• Setting up, helping to set up, or trying to set up a transaction in a way that would make it seem unnecessary to file Form 8300.
The criminal penalties for not filing IRS Form 8300 can be quite severe, and include:
• Any person required to file Form 8300 who willfully fails to file, fails to file timely, or fails to include complete and correct information is subject to criminal sanctions as a felony under IRC Section 7203. Sanctions include a fine of up to $25,000 ($100,000 in the case of a corporation), and/or imprisonment up to five years, plus the costs of prosecution.
• Any person who willfully files a Form 8300 which is false with regard to a material matter may be fined up to $100,000 ($500,000 in the case of a corporation), and/or imprisoned up to three years, plus the costs of prosecution.
• The penalties for failure to file may also apply to any person (including a payer) who attempts to interfere with or prevent the seller (or business) from filing a correct Form 8300. This includes any attempt to structure the transaction in a way that would make it seem unnecessary to file Form 8300. “Structuring” means breaking up a large cash transaction into small cash transactions to disguise the true amount of cash involved in the transaction.
How do you stay out of trouble in case the IRS audits you?
• File IRS Form 8300!!
• Keep copies of all IRS Forms 8300 that have been filed for 5 years from the original date of filing. This is not a suggestion or a recommendation, this is IRS law.
• File IRS Form 8300 within 15 days of receiving the money that brings total collections above $10,000 over the running 12-month period.
• On or before January 31st of the year following the filing of any IRS Forms 8300, you must provide to any business/customer/entity that paid you the cash a statement that includes:
• The name and address of the business that was the recipient of the cash
• The name and phone number of for a contact person for the business
• The total reportable cash that was received during the 12 month period, AND
• A statement that states that the recipient of the cash is reporting the information to the Internal Revenue Service
What types of cannabis/marijuana business and related business are most at risk?
• Growers that receive more than $10,000 in cash payments from a single dispensary/extraction/production client in any running 12-month period
• Ancillary product suppliers that sell directly to dispensaries/growers, etc that pay them in cash for their services and/or products – This could include companies that sell everything from pipes, bowls and rolling papers to companies that sell higher ticket items like grow equipment, security equipment, POS systems
• Third party service providers that deal with cash businesses in the industry also need to be aware of the filing requirements, these can include such businesses as payroll providers, attorneys, accountants and insurance businesses
Remember, the type of business that you run is not the issue here, it is the type of payments that you receive. If you deal directly with an all cash business and receive more than $10,000 in any rolling 12-month period, you MUST file IRS Form 8300!!
Please remember, the information above contains general information and it may or may not apply to your particular situation. It is strongly advised that you contact MyCannabisAccountant or your own tax adviser if you have any questions related to IRS Form 8300, or any other tax issues related to your business.