Don’t think that IRS employees are busy looking for lost emails. Agents are in the field, auditing. And car dealers are regular targets of audits – particularly of cash reporting. Every dealer should know about filing Internal Revenue Service Form 8300. That form is due when the dealership receives cash or cash equivalents of more than $10,000.00 in a transaction or related transactions. The IRS 
uses the reports to track cash use by potential investigation targets.
The penalties for failure to comply with cash reporting laws can cripple a dealership if the IRS deems a failure to be intentional or in reckless disregard of the dealer’s obligations. Sometimes when a deal is financed or payments come in installments, employees may have trouble identifying transactions to be reported. Employees may be confused unless a dealership has a written policy to prevent money laundering and for cash reporting.
Failing to file information returns on time or filing returns with the incorrect information subjects a party to a penalty of $100.00 per return, up to a maximum of $1,500,000 per calendar year. If the IRS deems failing to file to be an intentional disregard of the statute’s requirements, the minimum penalty for an intentional disregard is $250 per return. The maximum penalty, which the IRS usually imposes if it deems the taxpayer in intentional disregard of its obligations, is the greater of $25,000 per return or the cash received in the transaction, up to $100,000 per transaction.
The IRS has maintained a rather consistent enforcement position regarding intentional disregard penalties for dealerships that have experienced audits showing failures. Absent other factors showing an intent to evade the law, the first or second time the IRS discovers failures in an audit, it imposes standard disregard penalties. The IRS then expects the dealership to take action to prevent future failures. If, on a return audit, the IRS discovers new failures, it will seek to impose intentional disregard penalties of $25,000 per failure or the cash received, whichever is greater. This is done despite several court cases that have held that negligence is not intentional disregard. The IRS simply claims that failing to create a compliance system or procedures when the dealership knows of its obligations from a prior unsuccessful audit is enough to establish that subsequent failures rise to the level of intentional disregard.
Given the IRS position, how does a dealership develop a program that will help it avoid penalties? There is no set program. Any program should have some basics, however.
- A written policy to educate employees. The policy should cover:
o the definition of cash,
o the dealership’s obligations,
o the importance of all employees in a transaction to recognize a reportable transaction so necessary information such as the identities of all persons providing cash can be developed,
o how to avoid structuring (cooperation with the person providing cash to avoid the reporting requirement),
o advising others in the dealership that the transaction appears to be reportable, and
o training the person responsible for filing Forms 8300 of the need and process to file.
- The policy should differentiate the obligations to file the report for receipt of qualifying cash from the obligation to prevent money laundering. The former is a reporting function, but the latter is a felony. The policy must clarify:
o What is money laundering,
o The criminal penalties for money laundering,
o The signals of a money laundering transaction,
o The policy of the dealership that it will not do a transaction if it is suspicious, and
o The policy of the dealership to report suspicious transactions to the authorities.
- Training for all who may be involved in sales transactions, particularly salespeople, F&I people, and managers, so potential reportable deals can be identified while in progress;
- Routine backup, usually by the general office, to catch deals that escape being flagged while they are in progress;
- A separate backup review by the controller or a designate to ensure employees are performing as trained and to catch and report any deal previously missed.
- Using the company’s DMS in the backup process – the so called 8300 screen. The 8300 screen flags transactions based on input of the types of funds received.
- For the 8300 screen to work, cashiers must note the types of funds received on any receipt. Training and oversight of cashiers is critical to the operation of any backup system. If receipts are not coded, or improperly coded, the input will make the 8300 screen inaccurate.
o If the dealership is not using computerized backup, properly annotated receipts can provide a trail for deals flagged from the receipts journal. Remember, in any IRS audit, the examiner reviews the receipts journal looking for unreported deals.
o If transaction files are reviewed, either in the routine backup process or because of a backup review, the descriptions on the receipts will allow a reviewer to readily identify the nature of funds received to determine whether a Form 8300 should be filed.
o If the dealership must report transactions, it must note the number of $100 bills received. Recording the nature of the funds received on the receipt will aid in this process.
- Do not forget to train managers in the parts department, the service department, and in the used car department.
o Buying parts that can be sold in other countries for cash is an effective way to launder it, so parts department employees should know the rules.
o Cash payments for service work seldom are qualifying, but they can be if the customer pays more than $10,000 in cash, or cash less than $10,000 if the service is negotiated as part of the vehicle sale and all cash received by the dealership on the related transaction exceeds $10,000.
o If they are made for vehicle improvements as part of the sale process, they can be a related transaction that could trigger a reporting requirement.
o Wholesale vehicle transactions can trigger a cash reporting requirement under certain circumstances, for example, when one or more vehicles are sold in a 24-hour period, when the sale of one or more vehicles is negotiated within a 24-hour period, or when the cash is received in a 24-hour period.
- The program must provide for a disciplinary process for any employee involved in a failure.
- The program must provide for notification of filing Form 8300 no later than the end of the January of the year following the year Form 8300 is filed.
- Copies of submitted Forms 8300 filed should be maintained in a central location for easy audit and review, and in the deal files.
- Use the IRS system for electronic reporting so there is no question about transmission of the form and its receipt.
- Any cash reporting and money laundering prevention program is complicated. The dealership program should include appointment of a coordinator to ensure compliance, to answer questions, and to provide guidance in stopping and reporting to authorities a suspicious transaction.