Recently, our experts have heard reports of cannabis operators being penalized for failing to submit IRS Tax Form 8300.
The IRS has been auditing cannabis businesses in Colorado to make sure they’re completing Form 8300. Because the cannabis industry is heavily cash-based, the IRS is strict about targeting cannabis companies for compliance with their many forms and regulations.
From their database, the IRS is aware of what companies participate in this market, and as a result, can target their 8300 audits to this lucrative market. Penalties can range from $100 per reportable transaction to $25,000. Cannabis operators may also face charges under money laundering laws.
It seems there’s some confusion in the industry regarding this particular requirement – to the detriment of businesses across the country. We can outline the policies and procedures cannabis operators to use to train your employees and prove you have exercised due diligence in relation to Form 8300.
Here’s what you need to know to avoid gross negligence charges in case of an audit.
What is Form 8300?
IRS Form 8300 was instituted in response to the Federal government’s concern over money laundering after 9/11.
The Form must be submitted by any business that receives $10,000 or more in cash in a single transaction or multiple related transactions. Form 8300 does not need to be submitted for personal checks, cashier's checks, bank drafts, traveler's checks or money orders of $10,000 or more.
Essentially, this form needs to be filled out any time a business collects $10,000 or more in cash. The form does not need to be completed in a scenario where you collect this amount of cash from a person or give from person to another person (even if it's for a sale, for example purchasing a car off Craigslist.).
You can download Form 8300 here.
Why Do Cannabis Operators Need to Use Form 8300?
Cannabis companies are being targeted by the IRS for failing to use Form 8300 properly. The authorities know this is a cash-heavy industry, and are taking advantage of many operators' lack of experience to institute steep fines and heavy penalties.
Form 8300 was put into place in order to combat money laundering, tax evasion, and other criminal activities associated with cash-based transactions. Protect your business by instituting standard operating procedures around completing Form 8300. This will help your employees maintain compliance and keep your business safe.
These are just a few of the transactions that require your cannabis operation to file IRS Form 8300:
- Escrow arrangement contributions
- Pre-existing debt payments
- Negotiable instruments purchases
- Reimbursement of expenses
- Making or repaying a loan
- Sale of goods or services (including cannabis and cannabis products)
- Sale of real and/or intangible property
- Rental of real or personal property
- Exchange of cash for other cash
- Custodial trust contribution
In short: file Form 8300 whenever your cannabis company receives more than $10,000 in cash from a single transaction. This could mean cash in one lump sum payment; two payments related to a single transaction that add up to more than $10,000 within a 24-hour period; or $10,000 in cash in multiple installments related to single transaction over a period of 12 months.
How to Create an SOP for Form 8300
Standard operating procedures are critical to maintaining compliance as you hire more employees and grow your business. Form 8300 requires its own set of procedures to make sure you aren’t penalized by the IRS.
Step 1: Gather Customer Information
First, your team needs to collect certain information from the customer paying $10,000+ in cash. The information you need to report includes:
- First Name and Last Name of individual making cash payment
- Taxpayer identification number/social security number of individual making cash payment
- Address of individual making cash payment
- Driver license ID number and who it was issued by of individual making cash payment
- Legal entity name of the customer/business
- Taxpayer identification number/FEIN of the customer/business
- Address of the customer/business
Give your team directions as to where to securely store the customer information for future reference.
Step 2: Collect Payment Information
Make sure to get a cash receipt and store it with a second person who has access to the safe and maintains the cash log. Outline the proper checks and balances for making sure the person who collects the cash and the person who logs the cash are separate entities maintaining accountability. After receiving the cash receipt, a second person must:
- Verify that the delivery has provided signed invoice/shipping manifest as a proof of cash receipt being received
- Ensure that key information for filing Form 8300 is properly logged and saved in your secure filing system
- Log into the Cash Log the following information: Invoice number, Customer Name, and Cash amount received.
Step 3: Best Practices for Regular Compliance
The compliance officer and a cash custodian should regularly review 8300 transactions. Check cash logs to see if there are payments that trigger the 8300 reporting requirement. Make sure all the information has been saved to complete the 8300 form. Set up calendar reminders to make sure payments are submitted on time.
Form 8300 should be submitted weekly if necessary. If you are submitting the forms manually, send it to the IRS at:
Internal Revenue Service
Detroit Computing Center
P.O. Box 32621, Detroit, MI 48232
Your cannabis business must send through the correct Taxpayer ID number or SSN of the person you received the cash payment from when submitting the form. File Form 8300 within 15 days of receiving payment. Note that if the 15th day falls on a weekend or a legal holiday, the due date is the following business day.
Tips for Filing Form 8300
In addition to the best practices outlined in the standard operating procedures, our experts have the following recommendations to help you file Form 8300.
- Sign up for BSA E-filer.
- This is an online portal that supports the electronic filing of Bank Secrecy Act (BSA) forms. Through this system, you can add a customer, transfer information, and make the entire process more efficient.
- When e-filing on a Mac computer, use the Firebox browser and make sure you have Adobe installed. FinCen’s network works best with those tools.
- What if you don’t have a key piece of information?
- First, it’s not possible to e-file without the required information. If you are missing the FEIN, SSN, or a legal name, for example, you must manually complete the 8300 forms. The IRS prefers that you still file an incomplete 8300 rather than not file it due to missing details.
- What if you’re filing an old/overdue form?
- Our experts recommend that you mail the form, with tracking, and attach a statement explaining the circumstances for late submission. Indicate that your company was not aware of the requirement, and that since finding out about the requirement, you have developed policies and procedures to comply with the requirement and that all owners and employees have been trained on it.
Be proactive if you’re worried about being penalized over the 8300. Remember, the goal of the form is to prevent money laundering. Do everything you can to show you run an above-board business with a legitimate interest in serving your customers and paying your taxes.
Summary: Next Steps with Form 8300
To protect your business, go through your books and file forms for any cash payments over $10,000 that you may have missed. Store all filled Form 8300s for up to five years in case of an audit. Note that a cannabis company is required to notify customers it has filed the form on by January 31st of the following year.
Remember: the penalty to not file on a timely basis is $100 per occurrence. If you gross less than $5MM per year gross receipts, the most the IRS can charge in penalties for not filing is $500,000. Make sure that you get used to filing this form regularly!
For help in writing a statement to go with Form 8300, please reach out to our experts.
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