4.26.12  Examination Techniques for Form 8300 Industries (Cont. 1)

4.26.12.4 
Construction Industry Overview

4.26.12.4.6  (06-01-2006)
Form 8300 Review Techniques

  1. A transaction for the construction industry is the contract, job, or accepted bid amount. Included in this are all subsequent change orders and any other additions to the project.

  2. Additional agreements (add-ons) are entered into and added to the original contract and could be paid for in cash outside the contract.

  3. Always look for contracts signed by one contractor and worked and completed by another. Also look for rebates and returns between contractors, which could involve large amounts of cash that are subject to the Form 8300 requirements.

  4. Public records may be inspected for leads to projects. Building permits and zoning permits are available at the municipal offices where the contractor is involved in projects.

  5. Good sources of cash payments that could be over $10,000 and require Form 8300 filing are:

    • Selling of fill material from excavations to a third party or another contractor.

    • Selling of topsoil.

    • Disposal of various pieces of equipment, in sales between contractors.

    • Selling of salvage from demolition of large projects.

    • Job listings can identify cash transactions that occurred and had a CTR filed. By matching jobs to payments received, the examiner can trace any large cash payments requiring a Form 8300 to be filed.

    • Progress reports show the job number, customer name, scope of the work to be performed, job cost incurred to date, estimated cost to complete, change order dates, estimated fees, and the amount of the contract price earned to date. The reports are updated on a regular basis. If CTR(s) are compared, it may show cash other than that reported that is subject to the Form 8300 requirements.

    • Large amounts of cash may be found in claims filed in excess of the original contract, usually between contractors.

4.26.12.5  (06-01-2006)
Court Clerks Overview

  1. IRC Section 6050I(g), relating to court clerks, became effective on February 13, 1995, in the Violent Crime Control and Law Enforcement Act of 1994 (Public Law 103-322).

  2. These provisions apply to court clerks in both Federal and State court systems. Specific statutory provisions limit the applicability of the Form 8300 filing requirement for court clerks.

4.26.12.5.1  (06-01-2006)
Law

  1. IRC 6050I(g) requires any clerk of a Federal or state criminal court who receives more than $10,000 in cash as bail for any individual charged with any of the following specified criminal offenses to file a Form 8300:

    • Any Federal criminal offense involving a controlled substance;

    • Racketeering;

    • Money laundering; and,

    • Any state criminal offense substantially similar to one listed above.

  2. Certain monetary instruments with a face amount of $10,000 or less are included within the definition of cash for court clerks. ( Treas. Reg. 1.6050I-2(b))

  3. If someone other than the clerk receives bail on behalf of the clerk (such as a sheriff), the clerk is treated as having received the bail. The clerk must file the Form 8300 if the other filing requirements are met. ( Treas. Reg. 1.6050I-2(a) )

  4. If multiple payments are made to satisfy bail reportable under this section, and the initial payment does not exceed $10,000, the initial payment and subsequent payments must be aggregated, and the information required by IRC 6050I(g) must be filed by the 15th day after receipt of the payment that causes the aggregate amount to exceed $10,000. However, payments made to satisfy separate bail requirements are not required to be aggregated. ( Treas. Reg. 1.6050I-2(c)(ii))

  5. The court clerk is required to provide a statement of the aggregate amount of reportable cash by each payer of bail. This requirement can be satisfied either by sending a single written statement with an aggregate amount listed, or by furnishing a copy of each Form 8300 relating to that payer of bail.

    Note:

    This is the only instance where the regulations allow copies of Forms 8300 to satisfy the requirement to furnish the statement. ( Treas. Reg. 1.6050I-2(d)(2))

  6. A copy of each Form 8300 filed by the court clerk must also be sent to the United States Attorney in:

    1. The jurisdiction in which the individual charged with the specified crime resides; and,

    2. The jurisdiction in which the specified crime occurred, if different.

    Note:

    This copy must be sent by the 15th day after the date the reportable cash bail is received. ( Treas. Reg. 1.6050I-2(b)(1)

4.26.12.5.2  (06-01-2006)
Records Commonly Found

  1. Records most commonly found include:

    • Bank statements

    • Cash receipts journal

    • Duplicate deposit slips

    • Duplicate receipts book

    • Internal reports of bail status

    • Record of bail received

4.26.12.5.3  (06-01-2006)
Terminology

  1. For general terminology, see IRM 4.26.10.

  2. Bail refers to bond posted as a guarantee for the appearance in court of a defendant released from custody.

  3. "Specified criminal offense" is statutory language to denote the four types of offenses that require court clerks to file a Form 8300 if the other filing requirements of the statute are met. See IRM 4.26.12.5.1.

4.26.12.5.4  (06-01-2006)
Compliance Review Procedures

  1. The scope and depth of each Form 8300 compliance review will depend upon the facts and circumstances of each case.

  2. The following techniques are intended to be used as a guide and should not be considered all-inclusive.

  3. While Form 8300 compliance reviews are not recommended for Federal courts, they may be appropriate for State courts.

4.26.12.5.4.1  (06-01-2006)
Pre-Plan

  1. Prior to a Form 8300 compliance review the examiner should:

    • Review the CBRS for cash activity;

    • Review prior compliance review results;

    • Check for previous penalties; and,

    • Review the IDRS to verify that there are no assignments controlled to Collection, Criminal Investigation or Compliance.

4.26.12.5.4.2  (06-01-2006)
Initial Contact

  1. Any initial request for an appointment should be scheduled through the court’s administrative office.

  2. The initial contact may be made by telephone. An appointment letter with the scheduled time and date for the Form 8300 compliance review may be mailed to the court clerk.

  3. The Form 8300 compliance review should be conducted at the court. See IRM 4.26.11.

  4. Outreach is a critical part of a Form 8300 compliance review. In the initial contact with the court, the examiner must discuss with the court clerk or designated representative:

    • The filing requirements of Form 8300;

    • Notification to customer of any required Form 8300 filings;

    • The records to be maintained;

    • The civil and criminal penalties; and,

    • Structuring.

  5. The examiner should explain the compliance review process and specifically state that a Form 8300 compliance review is NOT an income tax examination.

4.26.12.5.4.3  (06-01-2006)
Interview

  1. The examiner should interview both the court clerk and/or designated employee to obtain basic information and to determine the person(s) responsible for compliance with IRC 6050I and filing Forms 8300.

  2. During the interview, the examiner should ascertain and/or verify:

    1. The TIN of the court;

    2. The names and titles of officers or employees who handle cash transactions and are responsible for filing Forms 8300;

    3. The responsible person’s knowledge of the reports required under IRC 6050I;

    4. The internal controls of the court with regard to cash transactions;

    5. Determine who handles received cash receipts, prepares bank deposit slips, and makes the bank deposits;

    6. The number and types of bank accounts;

    7. The type of records maintained on transactions required to be reported on Forms 8300;

    8. Whether or not the court clerk has filed any Forms 8300;

    9. Procedures used by the court clerk to ensure that the information contained in the Form 8300 was complete and correct; For example, did the recipient verify the identity of the person from whom the cash was received by a drivers license, passport, or other official document; and,

    10. Procedures used by the court clerk to notify transactors and U.S. Attorneys.

  3. The examiner should advise the court clerk that information from their records may be used for any tax matter permitted by the Internal Revenue Code.

4.26.12.5.4.4  (06-01-2006)
Review of Records

  1. The examiner should examine the appropriate documents and accounting records to determine:

    1. Transactions involving the receipt of reportable cash in excess of $10,000;

    2. Consecutive or related reportable transactions in excess of $10,000; and,

    3. Whether Forms 8300 were filed for such transactions.

  2. When reviewing entries in the cash receipts journal, ensure that only payments made for bail are considered. Payments for penalties or other surety payments are not covered under the statute.

  3. The examiner should be alert to identify transactions that may indicate attempts to avoid the reporting requirements of IRC 6050I. However, most courts do not allow partial payments of bail or other situations conducive to structuring transactions. Also, court clerks do not have an aggregation requirement except for multiple payments relating to a single bail.

  4. Depending on the initial findings of the Form 8300 compliance review, the examiner may need to expand the scope and/or depth of the review to include additional periods.

4.26.12.5.4.5  (06-01-2006)
Closing

  1. A closing conference should be held with the court clerk or designated representative. Other employees, such as the person responsible for filing Form 8300 may be asked to attend to assist in addressing specific items.

  2. The examiner should first review with the court clerk the transaction not reported, or filed incompletely or incorrectly.

  3. Obtain an explanation for any non-filed or incorrect Form 8300.

  4. If no referral to CI is warranted, the examiner should secure delinquent Forms 8300. (See IRM 4.26.11 for detailed information.)

  5. For a discussion of penalty consideration, see IRM 4.26.11.

  6. For details regarding case content, assembly and procedures, see IRM 4.26.11.

4.26.12.5.5  (06-01-2006)
Money Laundering Trends

  1. The court clerk is a public official/employee, with little incentive to assist transactors in structuring transactions. Because of the nature of bail payments and the requirements of the statute, transactors have fewer opportunities to structure payments.

  2. Most problems that will be encountered involve ignorance or misunderstanding of the law.

  3. Common problems which could be encountered include:

    1. Failing to obtain complete identifying information on transactors; (This is especially common when another entity, such as the sheriff, receives bail on behalf of the court clerk.)

    2. Failing to file Forms 8300 on reportable transactions; and,

    3. Failing to provide the required statement to transactors or U.S. Attorneys.

  4. Money laundering techniques which could be used by the transactor include:

    1. Using aliases or giving false identifying information when conducting transactions;

    2. Using a combination of currency and monetary instruments to conduct transactions; and,

    3. Using multiple payers of bail in an attempt to defeat the filing of the Form 8300.

4.26.12.5.6  (06-01-2006)
Form 8300 Review Techniques

  1. Ensure that only payments for bail are being considered. Court clerks receive fines, penalties and other types of surety payments, which are not covered under the statute.

  2. Ensure that the bail is paid for one of the specified criminal offenses listed in the statute. Bail paid for other crimes does not trigger the reporting requirement.

  3. Ensure that payments in monetary instruments are considered, along with payments in currency. The definition of cash in the regulations includes monetary instruments.

  4. Ensure that the court clerk is providing both notifications required:

    1. To the payer of bail; and,

    2. To the U.S. Attorneys office(s).

  5. Ensure that a pattern of attorney payments of large cash bonds for clients is documented. It may warrant referral to the BSA Coordinator for an 8300 review of the attorney.

4.26.12.6  (06-01-2006)
Escrow and Title Companies Overview

  1. Escrow companies are required to file Forms 8300 for transactions where cash received is greater than $10,000. The buyers will normally make payments into their trust sub-accounts using currency, wire transfers, direct deposits and monetary instruments.

  2. Escrow and title companies are normally associated with the sale of real property. In some states motor homes are treated as real property. Escrow companies are also used for the sale of businesses.

  3. The term Escrow Company is used interchangeably with Title or Land Company in this Section.

  4. Usually each escrow is given a unique identification number by the business for their internal recordkeeping. Most transactions relate to real property and business acquisitions.

  5. Generally this type of business has management, office staff, escrow officers and their staff, and a title search department. A specific escrow officer will normally be assigned to each escrow. The officer or one of their assistants receipts payments received on their specific accounts.

  6. Normally four payments are made into the customer’s sub-account:

    1. The initial deposit or "good faith" payment made with the offer to purchase;

    2. A second payment covering the balance of the down payment and projected closing costs;

    3. A third payment from the lender funding the loan; and,

    4. A final payment to reconcile the estimated closing costs with the actual closing costs.

      Note:

      The examiner should be aware that a series of payments may be observed if the down payment is substantial and the buyer draws from several bank accounts (or other sources) to make the down payment.

  7. Both title and escrow companies are licensed and regulated by each state. The examiner should check the rules for their area. The following are general guidelines for closing escrow(s):

    1. Escrow(s) paid in currency must be closed within 24 hours.

    2. Escrow(s) paid with certified monetary instruments must be closed within three days.

    3. Escrow(s) paid with personal checks must be closed within 7-10 days.

4.26.12.6.1  (06-01-2006)
Law

  1. IRC 6050I requires that any person engaged in a trade or business who receives cash in excess of $10,000 in one transaction, or two or more related transactions, in the course of their trade or business, must file a Form 8300 within 15 days of receipt of the reportable cash. A copy of each filed Form 8300 must be retained for five years by the business.

  2. Any business filing a required Form 8300 must also furnish a written statement to each person identified on the Form 8300 by January 31 of the succeeding calendar year. A copy of the Form 8300 should not be enclosed. A copy of the written statement must be retained by the business for five years. The statement must show:

    1. The name, address and telephone number of the person to contact for the business;

    2. The aggregate amount of reportable cash received during the calendar year; and,

    3. That the information was reported to the IRS.

  3. For additional information on the law and any statutory exceptions, see IRM 4.26.10.

4.26.12.6.2  (06-01-2006)
Records Commonly Found

  1. Records most commonly found include:

    • Bank statements

    • Customer Identification documents

    • Daily reconciliation of open customer trust sub-accounts

    • Duplicate deposit slips

    • Escrow closing documents

    • Escrow files

    • Escrow income reports

    • Escrow receipts

    • Monthly ledgers

  2. Generally, state law governs the documentation required to be held in the escrow file.

  3. Often this type of business has a record of all escrow deposits in the file and the file is "balanced" by the escrow officer prior to the closing of the escrow.

4.26.12.6.3  (06-01-2006)
Terminology

  1. For general terminology, see IRM 4.26.10.

  2. Balancing the Escrow - The act of reconciling all the amounts deposited and disbursed in the escrow account at the close of escrow to effectively bring the escrow to a zero balance.

  3. Escrow File - A folder containing all the relevant documents relating to a given escrow, usually identified by escrow number and the names of the seller and buyers. Information included in the file should include:

    • Balancing worksheet

    • Copies of correspondence

    • Copies of payment receipts

    • Escrow closing documents

    • Escrow instructions

    • Escrow officer notes and comments

    • Identification documentation for both parties

    • Title search information

  4. Trust Sub-accounts - Escrow companies will maintain one trust account for customer payments. When an escrow is opened, a sub-account will be created within the trust account where all financial activities are recorded.

4.26.12.6.4  (06-01-2006)
Compliance Review Procedures

  1. The scope and depth of each Form 8300 compliance review will depend upon the facts and circumstances of each case.

  2. The following techniques are intended to be used as a guide and should not be considered all-inclusive.

4.26.12.6.4.1  (06-01-2006)
Pre-Plan

  1. Prior to a Form 8300 compliance review, the examiner should:

    • Review the CBRS for cash activity,

    • Review prior compliance review results,

    • Check for previous penalties; and

    • Review the IDRS to verify that there are no assignments controlled to Collection, Criminal Investigation or Compliance.

  2. The examiner should become familiar with the common business practices and normal operations of escrow and title companies.

4.26.12.6.4.2  (06-01-2006)
Initial Contact

  1. The initial contact may be made by telephone. An appointment letter with the scheduled time and date for the Form 8300 compliance review is required to be given to the business. The letter can either be mailed or hand delivered to the business. On occasion, cold call visits may be appropriate with management approval. See IRM 4.26.11 for detailed information.

  2. The Form 8300 compliance review should be conducted at the place of business.

  3. Outreach is a critical part of a Form 8300 compliance review. In the initial contact with the business, the examiner must discuss with the owner/officer and the person responsible for cash transactions:

    • The filing requirements of Form 8300;

    • Notification to customer of any required Form 8300 filings;

    • The records to be maintained;

    • The civil and criminal penalties; and,

    • Structuring.

  4. The examiner should explain the compliance review process and specifically state that a Form 8300 compliance review is NOT an income tax examination.

4.26.12.6.4.3  (06-01-2006)
Interview

  1. The examiner should interview both the owner and/or manager to obtain information on the operation of the business and the employee responsible for filing Form 8300.

  2. During the interview, the examiner should ascertain and/or verify:

    1. The TIN of the business;

    2. The names and titles of officers or employees who handle cash transactions and are responsible for filing Forms 8300;

    3. The owner/officer’s knowledge of IRC 6050I and its regulations and that of the employee(s) designated by the business to identify reportable transactions and file Forms 8300;

    4. The internal controls of the business with regard to cash transactions;

    5. Determine who handles received cash receipts, prepares bank deposit slips, and makes the bank deposits;

    6. The number and types of bank accounts;

    7. The type of records maintained on transactions required to be reported on Forms 8300;

    8. Whether or not the business has filed any Forms 8300;

    9. Procedures used by the business to ensure that the information contained in the Form 8300 was complete and correct; For example, did the recipient verify the identity of the person from whom the cash was received by a drivers license, passport, or other official document? Generally these businesses use state notarizing procedures to identify the transactors;

    10. Procedures used by the business to notify transactors;

    11. The entity’s membership in various trade associations; and,

    12. Related entities.

  3. The interview and records inspection must be solely for the purpose of the Form 8300 compliance review. No inquiries should be made as to the filing of other returns required by Title 26 or whether a specific item is reported on any such returns. The latter inquiries could result in the opening of an income tax examination.

  4. Reference should be made to additional questions relating to knowledge and intent in IRM 4.26.11.

  5. The examiner should advise the trade or business that we may use the information from their records for any tax matter permitted by the Internal Revenue Code.

4.26.12.6.4.4  (06-01-2006)
Review of Records

  1. The examiner should examine the appropriate documents and accounting records to determine:

    1. Transactions involving the receipt of reportable cash in excess of $10,000;

    2. Consecutive or related reportable transactions in excess of $10,000; and,

    3. Whether Forms 8300 were filed for such transactions.

  2. The examiner should be alert to identify transactions that attempt to avoid the reporting requirements of IRC 6050I, such as:

    1. A single transaction structured as multiple transactions of less than $10,000.

    2. Transactions in excess of $10,000 where cash and non-cash payments appears to be combined to avoid the filing requirements.

    3. A pattern or series of transactions of less than $10,000 conducted over a relatively short period of time by or for the same person.

  3. Escrow companies do not normally maintain cash receipts journals but do maintain daily escrow income reports. These reports are posted to monthly ledgers.

  4. Each customer deposit of money into escrow is receipted with a numbered escrow receipt. The escrow receipt denotes the method of payment and refers to an escrow file control number.

  5. The escrow file number refers to an escrow file jacket containing duplicate escrow receipts, escrow closing documents, loan applications, a hard copy ledger, etc. The hard copy ledger is a journalized record of all payments and disbursements during escrow.

  6. The most efficient way to begin the Form 8300 compliance review is to request all escrow receipts within the review dates.

  7. An inspection of these receipts should disclose the method, date and amount of the payment the escrow number, and who received the payment. Often it will also show from whom the funds were received.

  8. Flip through the receipts noting those with large amounts of currency and multiple monetary instruments under $10,000.

  9. Record the findings in the workpapers, noting the following information:

    • The date;

    • The amount;

    • The escrow number;

    • The transactor; and,

    • The receipt number.

  10. During the review of these receipts, the normal business operation patterns will be discernible. Any irregularity in the normal patterns should also be noted and included in the workpapers.

  11. The examiner should record the bank records for the review period. Reconcile the duplicate deposit slips to the bank statements, any discrepancies should be noted in your workpapers.

  12. Duplicate deposit slips disclosing currency deposits in excess of $10,000, or multiple monetary instruments should be noted on a separate workpaper. This workpaper should show:

    • The date;

    • The amount of the deposit;

    • The type of the deposit; and,

    • Any identification of the source of the payment that is on the duplicate deposit record.

  13. Request the armored car service books which record all cash amounts handed over to that service. Inspection may reveal multiple or structured transactions.

  14. Review cashiers checks and money orders closely to note if the Escrow Company may be purchasing them with cash received from customers.

  15. The above steps will lead the examiner to escrow files for transactions greater than $10,000. Have the escrow company pull these files for further review.

  16. From a review of the escrow file, determine the total amount deposited into the escrow and the form of that deposit should be discernible.

  17. After reviewing all the files, the number of Form 8300 filings can be determined.

  18. To adequately document a Form 8300 violation, the examiner should make copies of the receipts for all payments received for that escrow, and other documents necessary to show that the information was available to complete the Form 8300. Copies should not be made of credit applications or other documents that are not relevant to the filing requirements.

  19. There may be a need, on a case by case basis, to interview the customer to obtain all the information needed to develop the issues.

  20. If a computerized system is utilized, the examiner must perform testing to ensure its integrity before relying upon such records for the Form 8300 compliance review.

  21. Depending on the initial findings of the Form 8300 compliance review, the examiner may need to expand the scope and/or depth of the review to include additional periods.

  22. For additional information refer to IRM 4.26.11 .

4.26.12.6.4.5  (06-01-2006)
Closing

  1. A closing conference should be held with the owner, corporate officer, or general partner. It may be necessary to interview the escrow officer, and their subordinates to ascertain the facts involved in a specific escrow transaction.

  2. The examiner should first review with the business the transaction not reported, or filed incompletely or incorrectly.

  3. Obtain an explanation for any non-filed or incorrect Form 8300.

  4. If systemic deficiencies have been identified, ask the business to provide a written statement of the corrective actions they will undertake to address the deficiencies noted.

  5. If no referral to CI is warranted, the examiner should secure delinquent Forms 8300. (See IRM 4.26.11 for detailed information.)

  6. For a discussion of penalty considerations, see IRM 4.26.11.

  7. For details regarding case content, assembly, and procedures, see IRM 4.26.11.

4.26.12.6.5  (06-01-2006)
Money Laundering Trends

  1. The business and/or the customer can be involved in potential money laundering schemes. The examiner must focus on both the business and the transactor(s) during the Form 8300 compliance review.

  2. Money laundering techniques which could be used by the business include:

    1. Failing to maintain complete records;

    2. Failing to maintain accurate records;

    3. Failing to record specific transactions;

    4. Failing to file Forms 8300 on reportable transactions; and,

    5. Structuring a transaction by breaking one transaction into several to circumvent the reporting requirements of the Internal Revenue Code.

  3. Money laundering techniques which could be used by the customer/transactor include:

    1. Using multiple locations to conduct transactions;

    2. Using several individuals at one or more locations to conduct a transaction;

    3. Using aliases when conducting transactions;

    4. Conducting numerous transactions at the same location at different times during one day; and,

    5. Using a combination of currency and monetary instruments to conduct transactions.

  4. Evidence uncovered of potential money laundering schemes should be referred to CI on a Referral Report for Potential Fraud Cases ( Form 2797).

4.26.12.6.6  (06-01-2006)
Form 8300 Review Techniques

  1. Often the escrow file will contain copies of the monetary instruments deposited into the escrow account, credit information and loan applications for the buyer. These may be useful in identifying structured transactions.

  2. Monetary instruments in amounts less then $10,000 in regular patterns need special scrutiny. This may be an indication of the potential structuring of the transaction to avoid the Form 8300 reporting requirements.

  3. Postal money orders may be purchased at a maximum amount of $700 for each money order. There is no recordkeeping requirement for the purchase of four money orders ($2,800). Money orders show the location purchased, the date, and the amount of the money order. The serial number of a money order is located along the top edge of the money order.

  4. In addition to structuring by the business or the customer, agents acting on behalf of the customer may aid and assist in the structuring of a transaction. Patterns may form involving a particular attorney, real estate broker, real estate agent, escrow agent, etc. Careful review of escrow files may reveal unusual patterns and trends. Forward information on any trends to the BSA Coordinator.

4.26.12.7  (06-01-2006)
Mobile and Manufactured housing Overview

  1. Retail mobile home dealers are primarily engaged in the sale, rental and repair of new and used mobile homes. Some also sell insurance for mobile homes. A mobile home dealer typically will offer the products of three or four manufacturers. A dealer may also have some units on consignment either from a manufacturer or a customer.

  2. Dealers of manufactured homes will sell or rent new or used manufactured homes. The dealer also will act as a resale agent. The dealer may transport and set up the home on the owner’s property. The dealer may also act as a general contractor and make property improvements, such as pouring foundations, driveways and building garages as part of the sale.

4.26.12.7.1  (06-01-2006)
Law

  1. IRC 6050I requires that any person engaged in a trade or business who receives cash in excess of $10,000 in one transaction, or two or more related transactions, in the course of their trade or business, must file a Form 8300 within 15 days of receipt of the reportable cash. A copy of each filed Form 8300 must be retained for five years by the business.

  2. Any business filing a required Form 8300 must also furnish a written statement to each person identified on the Form 8300 by January 31 of the succeeding calendar year. A copy of the Form 8300 should not be enclosed. A copy of the written statement must be retained by the business for five years. The statement must show:

    1. The name, address, and telephone number of the person to contact for the business;

    2. The aggregate amount of reportable cash received during the calendar year; and,

    3. That the information was reported to the IRS.

  3. For additional information on the law and statutory exceptions, see IRM 4.26.10.

4.26.12.7.2  (06-01-2006)
Records Commonly Found

  1. Records most commonly found include:

    • Bank statements

    • Conditional sales contracts

    • Duplicate deposit slips

    • Inventory cards

    • License verification

    • Purchase invoices

    • Receipt books

    • Sales folder or jacket

    • Sales journal

4.26.12.7.3  (06-01-2006)
Terminology

  1. Conditional Sales Contract - Also known as a financing sales contract. This is a contract where the seller has arranged or provided the financing for the purchase of the unit.

  2. Manufactured home - Similar to the traditional home, except that it is pre-built in a factory.

  3. Mobile Home - A pre-manufactured house, generally suitable for moving on wheels or by other transport. May be considered personal property or real property, depending upon local law.

  4. Modular Office - Similar to a mobile home but is marketed for use as an office, schoolroom, or other commercial purposes. These units may be rented, leased, or purchased

4.26.12.7.4  (06-01-2006)
Compliance Review Procedures

  1. The scope and depth of each Form 8300 compliance review will depend upon the facts and circumstances of each case.

  2. The following techniques are intended to be used as a guide and should not be considered all-inclusive.

4.26.12.7.4.1  (06-01-2006)
Pre-Plan

  1. Prior to a Form 8300 compliance review, the examiner should:

    • Review the CBRS for cash activity;

    • Review prior compliance review results;

    • Check for previous penalties; and,

    • Review the IDRS to verify that there are no assignments controlled to Collection, Criminal Investigation or Compliance.

  2. The examiner should become familiar with the common practices of the business.

  3. In considering what reportable cash is, it is necessary to know how the product is characterized under state law. State law governs the definition of personal property. Manufactured homes are generally considered to be real property. Mobile homes and modular offices may be defined as personal or real property, depending upon local statute. Further, a mobile home, which is treated as personal property, may later be classified as real property if it is permanently located. Whether the product is classified as personal property or real property, for purposes of determining whether a transaction is reportable, depends on how it is classified under local statute at the time of the sale. The product may be classified differently on resale.

4.26.12.7.4.2  (06-01-2006)
Initial Contact

  1. The initial contact may be made by telephone. An appointment letter with the scheduled time and date for the Form 8300 compliance review is required to be given to the business. The letter can either be mailed or hand delivered to the business. On occasion, cold call visits may be appropriate with management approval. See IRM 4.26.11 for detailed information.

  2. The Form 8300 compliance review should be conducted at the place of business.

  3. Outreach is a critical part of a Form 8300 compliance review. In the initial contact with the business, the examiner must discuss with the owner/officer and the person responsible for cash transactions:

    • The filing requirements of Form 8300;

    • Notification to customer of any required Form 8300 filings;

    • The records to be maintained;

    • The civil and criminal penalties; and,

    • Structuring.

  4. The examiner should explain the compliance review process and specifically state that a Form 8300 compliance review is NOT an income tax examination.

4.26.12.7.4.3  (06-01-2006)
Interview

  1. The examiner should interview both the owner and/or manager to obtain information on the operation of the business and the employee responsible for filing Form 8300.

  2. During the interview, the examiner should ascertain and/or verify:

    1. The TIN of the business;

    2. The names and titles of officers or employees who handle cash transactions and are responsible for filing Forms 8300;

    3. The owner/officer’s knowledge of IRC 6050I and its regulations and that of the employee(s) designated by the business to identify reportable transactions and file Forms 8300;

    4. The internal controls of the business with regard to cash transactions;

    5. Determine who handles received cash, prepares bank deposit slips, and makes the bank deposits;

    6. The number and types of bank accounts;

    7. The type of records maintained on transactions required to be reported on Form 8300;

    8. Whether or not the business has filed any Forms 8300;

    9. Procedures used by the business to ensure that the information contained in the Form 8300 was complete and correct; For example, did the recipient verify the identity of the person from whom the cash was received by a driver’s license, passport or other official document?

    10. Procedures used by the business to notify transactors;

    11. The entity’s membership in various types of trade associations; and,

    12. Related entities.

  3. The interview and inspection of records must be solely for the purpose of the Form 8300 compliance review. No inquiries should be made as to the filing of other returns required by Title 26 or whether a specific item is reported on any such returns. The latter inquiries could result in the opening of an income tax examination.

  4. Refer to IRM 4.26.11 for additional questions relating to knowledge and intent.

  5. The examiner should advise the trade or business that information from their records may be used for any tax matter permitted by the Internal Revenue Code.

4.26.12.7.4.4  (06-01-2006)
Review of Records

  1. The examiner should examine the appropriate documents and accounting records to determine:

    1. Transaction involving the receipt of reportable cash in excess of $10,000;

    2. Consecutive or related reportable transactions in excess of $10,000; and,

    3. Whether Forms 8300 were filed on such transaction.

  2. The examiner should be alert to identifying transactions that may indicate attempts to avoid the reporting requirements of IRC 6050I, such as:

    1. A single transaction structured as multiple transactions of less than $10,000.

    2. Transactions in excess of $10,000 where cash and non-cash payments appears to be combined to avoid the filing requirements.

    3. A pattern or series of transactions of less than $10,000 conducted over a relatively short period of time by or for the same person.

  3. Adjust pre-plan to include information gained from the interview and the random sample.

  4. When recording potential cash transactions, it is important to note:

    1. The date funds were received;

    2. The amount;

    3. The date funds were deposited;

    4. The name of the transactor;

    5. The receipt number; and,

    6. Account number and account owner (if different from transactor).

  5. For any transaction the examiner believes was reportable and a Form 8300 was not filed, the examiner should copy the receipts, contracts, and any supporting documentation needed. The examiner should record the location of the original records pertaining to these transactions.

  6. There may be a need, on a case by case basis, to interview a customer to obtain all the facts needed to develop the issues.

  7. If a computerized system is utilized, the examiner must perform testing to ensure its integrity before relying upon such records for the Form 8300 compliance review.

  8. Depending on the initial findings of the Form 8300 compliance review, the examiner may need to expand the scope and/or depth of the review to include additional periods.

  9. For additional information refer to IRM 4.26.11 .

4.26.12.7.4.5  (06-01-2006)
Closing

  1. A closing conference should be held with the owner, corporate officer, or general partner. Other employees, such as the person responsible for filing Form 8300 may be asked to attend to assist in addressing specific items.

  2. The examiner should first review with the business the transaction not reported, or filed incompletely or incorrectly.

  3. Obtain an explanation for any non-filed or incorrect Form 8300.

  4. If systemic deficiencies have been identified, ask the business to provide a written statement of the corrective actions they will undertake to address the deficiencies noted.

  5. If no referral to CI is warranted, the examiner may secure delinquent Forms 8300. (See IRM 4.26.11 for detailed information.)

  6. For a discussion of penalty considerations, see IRM 4.26.11.

  7. For details regarding case content, assembly and procedures, see IRM 4.26.11.

4.26.12.7.5  (06-01-2006)
Money Laundering Trends

  1. The business and/or the customer can be involved in potential money laundering schemes. The examiner must focus on both the business and the transactor(s) during the Form 8300 compliance review.

  2. Money laundering techniques which could be used by the business include:

    1. Failing to maintain complete records;

    2. Failing to maintain accurate records;

    3. Failing to record specific transactions;

    4. Failing to file Forms 8300 on reportable transactions; and,

    5. Structuring a transaction by breaking one transaction into several to circumvent the reporting requirements.

  3. Money laundering techniques which could be used by the customer/transactor include:

    1. Using multiple locations to conduct transactions;

    2. Using several individuals at one or more locations to conduct a transaction;

    3. Using aliases when conducting transactions;

    4. Conducting numerous transactions at the same location at different times during one day; and,

    5. Using a combination of currency and monetary instruments to conduct transactions.

  4. Evidence uncovered of potential money laundering schemes should be referred to CI on a Referral Report for Potential Fraud Cases ( Form 2797).

4.26.12.7.6  (06-01-2006)
Form 8300 Review Techniques

  1. If internal controls are inadequate or specific information exists that all cash sales are not recorded, the examiner should consider tracing a random sample of the current inventory back through the accounting records.

  2. A substantial part of a mobile home or manufactured home dealer's business is in the resale market. In this capacity, the dealer is acting as a broker. Resale units are not booked into inventory.

  3. The payment pattern of customers purchasing mobile homes and/or manufactured homes is similar to that observed in the retail auto industry. That is, it typically includes a down payment, possibly a trade-in, and financing arranged by either the customer or the dealer.

  4. A customer file for a mobile home dealer may be similar to either that of the auto industry or a title company. The difference is whether local regulations license the mobile home as a vehicle or whether it is considered to be real property.

  5. Mobile Home dealers are known as "traders" . Items they may receive in trade include:

    • Automobiles

    • Boats

    • Firearms

    • Furniture

    • Land

    • Livestock

    • Motorcycles

4.26.12.8  (06-01-2006)
Other Service Occupations Overview

  1. This Section addresses trades or businesses that provide services to their customers as opposed to those engaged in the sale of goods. Attorneys are discussed separately in IRM 4.26.12.2.

  2. While all trades or businesses are required to report cash transactions over $10,000, the examiner should focus on those businesses where there is a likelihood that large currency transactions may occur. Some occupational services which should be considered are:

    • Accountants

    • Bail Bonds

    • Collection Agencies

    • Delivery Services

    • Entertainment Facilities

    • Insurance Companies

    • Medical Professionals

    • Musicians and Entertainers

    • Real Estate Brokers and Agents

    • Travel Agencies

  3. Although these businesses are very different, there are some similarities between them. Most importantly for the purposes of Form 8300, they may all receive large payments of cash for providing a business service.

  4. The organizational structure of these businesses will vary greatly. Some will be large corporations, others will be partnerships, and some will be small sole proprietorships. Regardless of the organizational structure of the business, there will be a procedure for recording payments received in the course of the business.

4.26.12.8.1  (06-01-2006)
Pre-Plan

  1. IRC 6050I requires that any person engaged in a trade or business who receives cash in excess of $10,000 in one transaction, or two or more related transactions, in the course of their trade or business, must file a Form 8300 within 15 days of receipt of the reportable cash. A copy of each filed Form 8300 must be retained for five years by the business.

  2. Any business filing a required Form 8300 must also furnish a written statement to each person identified on the Form 8300 by January 31 of the succeeding calendar year. A copy of the Form 8300 should not be enclosed. A copy of the written statement must be retained by the business for five years. The statement must show:

    1. The name, address and telephone number of the person to contact for the business;

    2. The aggregate amount of reportable cash received during the calendar year; and,

    3. That the information was reported to the IRS.

  3. For additional information on the law and any statutory exceptions, see IRM 4.26.10.

4.26.12.8.2  (06-01-2006)
Records Commonly Found

  1. Records most commonly found include:

    • Bank statements

    • Customer files

    • Customer receipts

    • Duplicate deposit slips

  2. Additional records which may commonly be seen in specific occupations are:

    • Bid proposals and acceptances

    • Customer account receivable ledgers

    • Customer contracts

    • Delivery receipts

    • Insurance policies

    • Trip tickets

    • Trust accounts

  3. Bail bond agents will have the following additional records:

    • Bail agreements

    • Collateral receipts

    • Invoices for blank bonds from the surety company

    • Numbered weekly reports to the surety company

4.26.12.8.3  (06-01-2006)
Terminology

  1. For general terminology, see IRM 4.26.10.

  2. Many of these businesses have specific terminology. The examiner should refer to other industry specific sources, such as MSSP guides for a more complete listing of general industry terminology.

4.26.12.8.4  (06-01-2006)
Compliance Review Procedures

  1. The scope and depth of each Form 8300 compliance review will depend upon the facts and circumstances of each case.

  2. The following techniques are intended to be used as a guide and should not be considered all-inclusive.

4.26.12.8.4.1  (06-01-2006)
Pre-Plan

  1. Prior to a Form 8300 compliance review, the examiner should:

    1. Review the CBRS for cash activity;

    2. Review prior compliance review results;

    3. Check for previous penalties; and,

    4. Review the IDRS to verify that there are no assignments controlled to Collection, Criminal Investigation or Compliance.

  2. The examiner should be familiar with the common practices and normal operational flow of the business.

  3. Accounting firms provide more than accounting services. Firms today will provide management consulting services over a wide array of issues affecting businesses. Note that the services provided may result in reimbursement of expenses and goods purchased as part of the consulting contract. An example is computer software programs either written or purchased and provided as part of the contract.

  4. A bail bond firm arranges on behalf of its customer, to post a bail required by a court. Depending upon the jurisdiction, the customer may be required to post an amount anywhere from 10% to 100% of the bail amount. In addition, the bail bond company may also require additional amounts from its customer, to ensure the integrity of the bond.

  5. Collection agencies secure payments, often in cash for previously uncollected debts. Collection agencies will then deduct their fee and remit the balance to the firms, which contracted with them. The agency rule under Treas. Reg. 1.60501-2(b)I-1(a)(2) does not apply since the funds are received from the debtor not the principal.

  6. Delivery services often receive payments for items being shipped on behalf of the seller/shipper. Depending on the relationship with the shipper/business and the customer, the payment received by the delivery company may be required to be in cash.

  7. Entertainment facilities may receive large cash payments for special group sales, luxury accommodations, or special large ticket events. Initiation fees paid to country clubs and similar business organizations should also be considered.

  8. Insurance companies sell insurance policies, and annuities. Depending on the size of the contract, the cash payment could be substantial. Particular attention should be directed to those firms offering single premium or similar front loaded premium plans.

  9. Professional musicians and entertainers performing at large events may receive payment for their services in cash. Often they will also receive cash payments from the vendor(s) at the event based on a contracted percentage of the vendor’s total sales at the event.

  10. Real estate brokers and agents receive payments from their clients for transactions involving assets which are generally greater than $10,000. Depending on the prevailing state laws and licensing agencies, there are specific rules for the treatment of deposits received from the buyer/client. See IRM 4.26.12.6 for additional information on real property transactions.

  11. Some medical professionals, especially specialists, receive payments for their services directly from the patient. Many elective surgical procedures are not covered by medical insurance and are paid in cash, often in amounts greater than $10,000.

  12. Travel agencies arrange and book trips for individuals and groups. Total costs for trips often exceed the $10,000 threshold. Trips arranged for groups are treated as single transactions. Travel agencies may also provide financial services regulated by the BSA. These may include sale or redemption of travelers’ checks, currency exchange and wire services. The Service has regulatory authority for these financial services when provided by a business such as a travel agency. Refer to IRM 4.26.9 for guidance.


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