Why Should Cannabis Companies File Form 8300?

The Cannabis Tax Resolution Minicast

Topic #1: What is Form 8300
● Form 8300 is used as an institutional financial safeguard from money laundering, potential financing of terrorist activities, and other financial illicit activity. Basically, the form's premise is to keep an eye on the flow of large sums of cash to prevent criminal financial activity.
Topic #2: ( Why do cannabis operators need to use form 8300? )
● Unfortunately, because Marijuana is still on the feds Schedule 1 list, meaning it's an illegal drug in the eyes of the Federal government, banks remain reluctant to do business with Marijuana-related businesses. Because of this, businesses within the industry are forced to trade in cash, and like any cash-based business, the IRS scrutinizes transactions very closely. Additionally, cannabis operators need to use form 8300 to comply with the Bank Secrecy act of 1970, a law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering. So form 8300 is just one of the many safeguards the government has put in place to try and curtail financial crimes. Because cannabis is still illegal on the federal level, it makes it even more important that the industry complies with all federal laws, including completing form 8300 when required, so that they minimize any reason for the federal government to come in and shut them down.
Topic #3:(Who must file form 8300)
● According to the law, all persons involved in a trade or business who receives more than $10,000 in cash in a single transaction or a related transaction must file a form 8300
● In this case, a person, as it relates to form 8300, is defined as an individual, a company, a corporation, a partnership, an association, a trust, or an estate. So, in other words, all these entities are defined as persons.
● A single transaction, of course, means a "one and done" transaction
● While related transactions are a series of transactions that are conducted within 24 hours OR transactions that are conducted over a period that is greater than 24 hours if the recipient of the cash knows or has reason to know that each transaction is one of a series of connected transactions. For example, if you are receiving cash for the purchase of a product, and the total cost of said good is $50,000 if the payments are broken up into 6 payments and you collect the cash over a 5 day period, that transaction is referred to as a related transaction which means if your first installment collection is less than $10,000 and your second installment collection causes the total amount collected to exceed $10,000, at that point you will be required to file form 8300 even though you haven't yet collected the entire $50,000..
● Form 8300 is only required to be completed during a trade or business deal which means if I on a personal level sell my vehicle for $12,000, I am not required to fill out a form 8300 for the transaction because the money was not paid to me in the course of a trade or business. It was just me selling my car to someone.
Now let me just run down some of the types of transactions that are subject to form 8300 reporting
A sale of goods or services
A sale of real property
A sale of intangible property
A rental of real or personal property
An exchange of currency for other currency
The establishment, maintenance of, or contribution to an escrow, trust, or custodial arrangement
Payment of a pre-existing debt
Conversion of currency to a negotiable instrument
Reimbursement for expenses paid
The making or repayment of a loan
These are just a few examples of relevant transactions.
Topic #4: (What is considered cash?)
● It's important to know this because you need to know if you have a form 8300 reporting requirement based on a particular cannabis transaction.
●Per the United States treasury regulations, cash is defined as follows
Any United States or foreign coin or currency - so that means if you are paid in dollars or foreign currency, you are required to file form 8300 if the amount received exceeds ten thousand in U.S dollars
Also considered cash are Cashiers check, money order, bank draft, or travelers check if the cashiers check, money order, bank draft, or travelers check is under $10,000.
If you receive a cashier's check, money order, bank draft, or travelers check for over $10,000; it's not considered cash for the purpose of form 8300 reporting requirements.
This is because when a person purchases a monetary instrument like a cashiers check or a money order, the bank or financial institution that issued the cashiers check, bank draft, traveler's check, or money order to that person is required to report the transaction on their end, which means you the cannabis operator is not required to report the transaction on form 8300.
Personal checks are also not considered cash for the purpose of 8300 reporting. So if you receive payment for a single cannabis transaction that includes cash of $5,000 and a check for $7,000, even though the total amount received is $12,000, this is not a reportable transaction because you didn't receive more than $10,000 in cash.
Any proceeds you receive from a bank in the form of a loan isn't considered a reportable cash transaction for the purpose of form 8300.
Topic #5: (Preparing form 8300 and When & how to file)
Main point – Cannabis business preparation of form 8300
● All persons must file, which includes an individual, a company, a corporation, a partnership, an association, a trust, or an estate
● And the circumstance in which a person must file is based on the receipt of cash for a transaction or related transactions in excess of $10,000
● Now let's talk about preparing form 8300 and when and how to file the form
If you download a copy of the form, you'll notice that there are two boxes on the top of the page. A box needs to be checked if you are filing an amended form, and the second box needs to be checked if you suspect suspicious activity. We didn't really get into the form's suspicious activity aspect, but just remember that if you enter into a transaction with a person that you think is up to no good, you can use form 8300 to report the activity. The difference between using form 8300 for reporting suspicious activity vs. reporting a payment received over $10,000 is that the "over $10,000 rule" doesn't apply to suspicious activity reporting. The form can be used to report suspicious transactions under $10,000. That's just an FYI if you ever find yourself in that situation.
Part 1 of the form requests the individual's identity from whom the cash was received, which should include the person's name, Tax Id number, address, and date of birth. The tax I.D. number should be either the person's social security number or if the person is a resident alien or a nonresident alien who isn't eligible to receive a Social Security Number, they should provide their IRS Individual Taxpayer Identification Number.
Part 1 of the form should also include the occupation, profession, or type of business engaged in the business, (for example, Cannabis dispensary, Cannabis manufacturer, or what aspect of the business you are engaged in).
And finally, for part one you are required to include the details of an identifying document of the person you received the cash from. The document must be a legal document like a driver's license, passport, alien registration card, or other official documents.
Part 2 of the form is where you identify the person on whose behalf the transaction was conducted. You must provide the individual's or the organization's name and tax identification number. If the person on whose behalf the transaction is being conducted is an individual or a sole proprietorship, you are required to include both their social security number and their EIN (that's their employer identification number) if they have one. If the person is an organization, you only need to include their EIN. There is also an area to include a DBA if the organization is doing business under a different name. You will also need to include the business's address and other identifying information.
Part 3 asks for the "description of transaction and method of payment." In this section, you should include the date the cash was received, the total amount of cash received, whether or not cash was received in more than one payment (for example, was the cash received an installment payment or was it payment on a related transaction?). You will also include in part three the total price of the transaction associated with the payment. There are a few other areas to complete in part 3, but I'm going to let you take a look at the form for yourself so that you get used to how the form is laid out.
And finally, part 4 of 8300 asks for information about the "business that received the cash." The name of the business, the employer identification of the business, and also the nature of the business. When describing the nature of the business, you have to be specific and not vague. For example, rather than describing the nature of your business as a store or manufacturer, it id a lot more descriptive to say Cannabis cultivator or Cannabis dispensary.
I recommend that you download a copy of the form and look it over. It's a relatively simple form to fill out. The most important thing to keep in mind is that you fill out ALL of the information on the form; which means you need to make sure that you have all the details you need from the person you are receiving the money from, all the necessary information from the person responsible for picking up the money, and the necessary information about the business itself.
Although not filing a form 8300 is a major offense that will open you up to deep trouble, filing an incomplete form will also subject you to costly penalties that will chip away at your profits.
All forms MUST be signed under penalty of perjury by an individual within the business authorized to do so.
Now let's get into when form 8300 is due and how to file the form.
Form 8300 is due within 15 days from the day you received the cash. If you receive payments in installments that are related to a single transaction, you have to complete and file form 8300 once you've received over $10,000 in installment payments toward the total amount due. So if you are due $50,000 and you've received $11,000 of the $50,000, you have to complete and file form 8300 for the $11,000 that you've received. You can't wait until you receive the entire $50,000 before reporting the receipt of funds on form 8300.
Filing form 8300 - you can file the form in two ways, either by mailing a completed form to the IRS, or you can efile the form using the Bank Secrecy Act electronic filing system. E-filing the form is free, and it's a quick and secure way to file the form.
Topic #6:(furnishing the annual statement)
Main point - In addition to the requirement to file form 8300, a second requirement stipulates that you provide an annual statement to every person you completed a form 8300 for during the year.
● There is no official IRS form to complete when sending out the written statement, you just have to make sure that the form you create contains all of the mandatory information.
The statement must contain the name, address, and telephone number of the business's contact, the aggregate amount of reportable cash received from the person during the calendar year and a statement that you, the filer reported this information to the IRS.
The deadline to provide the annual statement is by January 31st of the next calendar year. MEANING, everyone you filed a form 8300 for in 2022 should receive an annual statement from you by no later than January 31, 2023.
There are two exceptions to the annual statement rule - one is if you or your business only filed one Form 8300 during the year for a particular customer, you are allowed to send a copy of that same Form 8300 to the customer instead of an annual statement. However, keep in mind that even if you provided a copy of Form 8300 at the time of the transaction, you are still required to provide your customer with that same copy at year-end. Having given it to your customer earlier in the year doesn't count.
The second exception to the annual statement requirement is that if your business voluntarily files a Form 8300 to report a suspicious transaction, you should not send an annual statement to that customer.
Topic #7: (What is structuring?)
Main point – Structuring by cannabis companies and what it means
● I will keep this simple by using an example of an auto dealer indicted for illegally structuring cash transactions. I'm going to read the story word for word so that I don't miss any details.
On June 13, 2013, a federal grand jury charged an automobile dealership in Ohio with illegally structuring bank deposits to avoid IRS reporting requirements. The 26-count indictment alleges that the company "made multiple cash deposits in amounts less than $10,000 on the same day or consecutive days" in order to avoid filing a Form 8300. The company faces penalties of up to five years in prison for each count, while the business faces penalties up to $50,000 for each count.
This case illustrates that the authorities remain vigilant in monitoring cash transactions and prosecuting individuals and businesses that violate reporting requirements. You should take cash reporting requirements seriously, and establish safeguards so that your employees will not only report cash transactions that exceed $10,000 but also detect efforts by others to avoid reporting requirements by making several smaller cash transactions.
Basically, the story is that the auto dealership tried to game the system by breaking cash receipts into smaller chunks to avoid completing and filing form 8300. All I have to say about structuring is DON'T DO IT. It's not worth the backlash and punishment if you get caught.
Topic #8:(Penalties)
Main point - Now, let's talk about penalties. The IRS normally adjusts the penalty amounts annually for inflation. So based on this useful information, penalties for form 8300 will change from year to year. The rates I'm going to discuss today are based on 2020, so if you are listening to this in a subsequent year, I'd advise you to check the penalties amounts in the year you are in.
● The two main types of penalties are criminal and civil. Each type has several sub-sections
● The civil penalty for negligent failure to timely file or to include all required information, or to include correct information is $270 per return. The IRS does however, give you 30 days to cure your late filing. If you cure your late filing within 30 days, the penalty is reduced to $50 instead of $270.
● The civil 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) $27,820 or (2) the amount of cash received in the transaction, not to exceed $111,000 - so that means that if you intentionally don't file and the amount you should have filed was let's say $75,000, that means that your penalty will be $75,000. Don't let this happen to you. Have a company process in place that will assure you don't neglect to file the form on time.
The civil penalty for negligent failure to furnish a timely, complete, and correct annual statement to the person(s) you provided a Form 8300 is $270 per statement. However, if you cure your failure to furnish the annual statement within 30 days, the penalty is reduced to $50 instead of $270.
Intentional disregard of the requirement to furnish timely, correct, and complete annual statements is $550 per failure or, 10 percent of the aggregate amounts that were not reported whichever is greater. So once again, if the greater amount is 20,000, that's how much the penalty will be instead of the stated $550
● Criminal penalties - A person may be subject to criminal penalties for all of the following:
If you willfully fail to file a Form 8300,
If you willfully file a false or fraudulent Form 8300,
If you stop or try to stop a Form 8300 from being filed
If you set up or help to set up or try to set up a transaction in a way that would make it seem unnecessary to file Form 8300
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. Sanctions can include a fine up to $25,000 ($100,000 in the case of a corporation) and/or imprisonment up to five years, plus prosecution costs.
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; this is called structuring. "Structuring" means breaking up a large cash transaction into small cash transactions to disguise the true amount of cash involved in the transaction
So once again, I'm telling you - just don't do it, it's not worth it.
Topic #9: ( statute of limitations)
● There is a civil statute of limitation related to form 8300. Simply put, the IRS has three years to come for you for either not filing or filing an incomplete form 8300. The three-year limitation starts on the day you filed the form.
● There is no statute of limitations if you never filed the form. Meaning, if the form was never filed, the IRS can assess penalties at any time
● There is no statute of limitations for penalties for failure to file an annual statement.
Website
Email: [e-mail]
Phone: [phone]
Schedule an appointment