Most people are aware that cash transactions for $10,000 or more have to be reported to the IRS to help identify and prevent money laundering activities. For cash-based businesses, this reporting requirement can be burdensome, so people will try to arrange payments in such a way as to avoid the $10,000 limit. However, the act of splitting up payments or arranging them in a manner to avoid the reporting requirement is itself a crime, called “structuring.” While a detailed description of all of the nuances of structuring is beyond the scope of this post, let’s take a look at some of the basics.

What is a Structured Transaction?

Simply put, a structured transaction is any series of transactions that could have been conducted as a single transaction but was intentionally broken up to avoid the reporting requirements under the Bank Secrecy Act. For instance, if you have $15,000 in cash to deposit and decide to split it up into two deposits of $7,500 instead to avoid the reporting requirements, this is considered a structured transaction. In some cases, this is true even if the two smaller deposits now occur multiple days apart.

Do All Transactions Over $10,000 Have To Be Reported?

No. There are several exceptions to the reporting requirement. This is where the help of a knowledgeable professional can save you a lot of time and headache. The most prominent exception is a non-cash-based transaction. For instance, personal checks of any amount are exempt from the reporting requirements. Unlike cash, there is a paper trail with a personal check, so there is no need to report it.

Sometimes the subject of the transaction may waive the reporting requirement. In some instances, if the deal is done for a durable good, using a cashier’s check, then it may not have to be reported. There are other requirements to these exceptions, so before you decide not to file a report, make sure you are exempt.

How Bad Can the Penalties Be?

First, let’s talk about the civil penalties. If you fail to report the transaction promptly, the penalty can be up to $270 per reporting instance. If you fail to report at all, then the penalty can jump to the greater of the cash amount received in the transaction or almost $28,000 per each failure to file. As you can see, it only takes a few transactions to become very serious. If you have multiple transactions, then it can become overwhelming.

However, the civil penalties are just that, a penalty. If the IRS can prove that you were willful in your failure to file or file correctly, the case can quickly become criminal. The punishment can include a fine, prison time, and the cost of prosecution. The punishment applies not only to those who do not file or file correctly but also to those who try to structure a transaction to prevent the seller from having to file.

What Can I Do?

First, if you deal with cash transactions, make sure to talk to a professional about how and when to report them properly. Ensure that you have the proper controls to identify when you need to register a transaction, collect the relevant information, and file the appropriate forms in the applicable time frame. A little dose of prevention can go a long way in this situation.

Second, if you are under audit, and the IRS is looking at whether you have reported your cash transactions correctly, make sure that you talk to an attorney before proceeding any further with the audit. You want to make sure that you are protected, and you are prepared. The last thing you want is for a civil audit to turn criminal because you were not represented.

If you are under audit or dealing with an examination of your 8300 transactions, contact us today to discuss your rights.