There have been several news stories lately about the IRS seizing bank accounts of businesses on suspicion of structuring. Civil asset forfeiture allows law enforcement and other agencies to confiscate assets on suspicion of criminal activity without having to file formal charges. In the case of the recent IRS seizures, the suspicion was what’s called structuring, spreading cash transactions out over time to try to avoid reporting requirements. Questions of civil forfeiture aside, these incidents shine the light on the seriousness with which the IRS treats structuring and cash reporting and those issues have far reaching implications.
The basic rule is this. Cash transactions of over $10,000 must be reported using IRS/FinCen Form 8300, Report of Cash Payments over $10,000 Received in a Trade or Business. This requirement exists to target attempts at money laundering and other financial crimes, creating an audit trail that can be followed in the future. Structuring is when someone tries to avoid the requirement to file Form 8300 by breaking payments up, for example making two $6000 payments a week apart instead of one $12,000 lump sum. Regardless of the amount of any single transaction, if a group of related transactions exceeds $10,000 in total, Form 8300 must be filed. Failure to file carries steep civil and possibly criminal penalties.
The business involved in the recently reported seizures were those who involved frequent cash transactions, restaurants for example. The IRS seized the accounts based on frequent cash deposits on suspicion they were connected to structuring.
Cash transactions for businesses are not the only transactions to incur reporting requirements and they are not, presumably, the only transactions where the IRS might involve civil asset forfeiture. When receiving a gift from a foreign person, for example, there is a reporting requirement if the gift received is over $100,000 in Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. The logic used to link transactions as structuring for cash transactions could easily be applied to such gifts. In the same way the IRS could argue that two $6000 payments were related and that thus the requirement to file Form 8300 existed, a similar argument could be made that two gifts of $55,000 are related and thus the Form 3520 requirement exists.
Horowitz Law Offices represents taxpayers before the IRS, the Illinois Department of Revenue and the Chicago Board of Finance in a variety of tax and collections situations. We also assist individuals in handling foreign gifts. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org