In recent years the government has become more sophisticated in how they fight terrorist organizations. Efforts to cut off terrorist funding have become an increasingly important part of the federal government’s strategy. These motivations can help partially explain why Internal Revenue Service (IRS) agents are reportedly out in force conducting 8300 audits at automobile dealerships.
IRS 8300 Audit Methodology
When you find that dreaded note that your assistant left on your desk, “Mrs. Smith with the IRS called and wants you to call her back”. Get ready; you are in her cross hairs. She will ask you for last year’s sales information. She has already obtained your bank’s deposit records. Upon arrival she will ask your Controller to reconcile the $88,158.24 in cash you deposited on July 20, 2013.
Mrs. Smith will chat with dealership employees who are responsible for 8300 reporting. Hopefully these employees know that an $8,000 Cashier’s Check combined with a $3,000 cash down payment qualifies for an 8300 filing. Point is – when an IRS agent walks into your dealership, she is prepared to find violations and willing to assess some major fines.
The maximum fine for intentionally failing to file an 8300 is $25,000. Using the wrong form (not the current form) is reportedly considered as non-filing. The dealers I have chatted with who have recently experienced an 8300 audit report that the IRS aren’t playing around. Intentional non-filing is being liberally applied in assessing fines.
Focus On The Blocking And Tackling
My College and NFL teams are participant in their respective playoffs. They got there in part by paying attention to detail and following their processes. A dealership should take the same approach to all federal and state requirements, including the 8300 process. Implementing a basic compliance model in all areas required by federal and state statutes is essential to firming up your processes to conform to these requirements.
This compliance model starts with conducting a risk assessment of your process vis-à-vis the requirement. Next, you develop and train your employees on a policy and procedure for the process. Finally, you must periodically inspect the output to confirm you conform.
An 8300 Compliance To Do List
Most importantly, ensure you have a policy and procedure and train your employees on the 8300 requirement. Clearly define cash and cash-like instruments. Some dealership employees do not consider a Cashier’s Check for $10,000 or less to be the same as cash in a transaction.
Review the Fed’s standard for related transactions. For example, one person purchasing two or more vehicles within 24 hours is considered a related transaction. If $6,000 in cash or cash-like instruments are received on each deal, that is over the $10,000 limit and must be reported.
Ensure the current form is being used to report qualifying transactions. A fillable PDF version is available on the government’s website and is an attractive option to avoid using an outdated form. Emphasize the 15 day time requirement to file the 8300. One Office Manager recently lamented that she did not receive the 8300 from the F&I Manager until three weeks lapsed, and now faced a late filing penalty.
Make it clear when the letter to the customer is to be provided. Some dealers give it to the customer at the time the cash is received; others mail the letter when the 8300 is filed while still other dealers mail all the letters in January of the following year. All three are in compliance, just decide your process, be consistent and audit it.
Understand that suspicious transactions are the trump card. Just because the amount of cash and cash-like instruments does not exceed the “in excess of $10,000” threshold does not mean you may not have to file an 8300.
If you are a dealer in Las Vegas and you receive $9,000 in singles from an entertainer as a down payment, you may want to file an 8300. Conversely, a rural Wisconsin dealer may choose to not file an 8300 when a dairy farmer plops down ninety one-hundred dollar bills.
The Federales are serious about money laundering and cash reporting audits are just one of the tools it uses to ensure enforcement. The statue is very clear on a business’ requirements, and not overly complex. There are details to pay attention to, but can be done. There really isn’t an option for non-compliance.
“Most importantly, ensure you have a policy and procedure and train your employee on the 8300 requirement.”