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Part 4. Examining Process

Chapter 26. Bank Secrecy Act

Section 12. Examination Techniques for Form 8300 Industries (Cont. 2)

4.26.12  Examination Techniques for Form 8300 Industries (Cont. 2)

4.26.12.8 
Other Service Occupations Overview

4.26.12.8.4 
Compliance Review Procedures

4.26.12.8.4.2  (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. Education 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 or 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.

4.26.12.8.4.3  (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 Forms 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 Form 8300;

    8. Whether or not the business has filed any Form 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 official document?

    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 may constitute 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.

4.26.12.8.4.4  (06-01-2006)
Review of Records

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

    1. Transactions occurred which involved the receipt of reportable cash in excess of $10,000;

    2. There are consecutive or related reportable transactions in excess of $10,000; and,

    3. Forms 8300 were filed on such transactions.

  2. The examiner should be alert to identify 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. Upon completion of the interview, conduct a random sample of transactions, tracing the customer’s payment through the banking and accounting records. The review of sample transactions should be used to confirm the information given in the interview about the records and also to test that the records to be reviewed are complete and include all sales. Note any discrepancies.

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

  5. The records selected to be examined should be appropriate for the compliance review.

    • If the value of the services is consistently over $10,000, then starting with the customer receipts that identify both the amount and type of payment may be appropriate.

    • If only some of the services provided are valued at over $10,000, then beginning with trip tickets, bail bond certificates, contracts, or customer accounts receivable may be more appropriate.

    • If the definition of reportable cash is only currency, then starting from duplicate deposit slips may be the best approach. However, note that cash will include certain monetary instruments in any transaction that were used to avoid the reporting requirements of IRC 6050I.

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

    • The date funds were received;

    • The amount;

    • The date funds were deposited;

    • The name of the transactor;

    • The receipt number; and,

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

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

  8. 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.

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

  10. 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.

4.26.12.8.4.5  (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 transactions 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.

4.26.12.8.5  (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.

4.26.12.8.6  (06-01-2006)
Form 8300 Review Techniques

  1. Pay special attention to cancelled contracts. Those paid in cash, cancelled in close proximity to the initial payment, and refunded by company check may be an indication of money laundering.

  2. Different individuals making multiple deposits for one transaction may be an indication of structuring.

  3. In real estate transactions, review the trust fund account. Patterns of trust fund deposits just below the reporting threshold may be an indication of structuring. In this instance, the structuring could involve the broker or agent, as well as the client.

  4. A good method for determining currency thresholds is to ascertain the number of payments generally made for the type of transaction and business. Then divide $10,000 by the number of payments and round to the next highest thousand. (For example, if there would normally be 3 payments in a transaction, divide $10,000 by 3, and round up to the next thousand = $4,000).

  5. Payments for service using certain monetary instruments in amounts less than $10,000 in regular patterns may be an indication of potential structuring of the transaction to avoid the Form 8300 reporting requirements.

  6. Patterns of monetary instruments purchased in blocks and then tendered as part of a payment in excess of $10,000 may indicate attempts to avoid the identification requirement of BSA (Title 31). The monetary instruments may not only identify a violation of IRC 6050I, but also of Title 31.

  7. For travel agencies and entertainment businesses, cash includes money orders and cashiers checks with a face value of $10,000 or less.

  8. Bail bond firms will require the receipt of "good" funds for posting of a bond. Therefore, currency may be seen more frequently in this service occupation than others. Be alert to the use of monetary instruments to avoid the filing of Form 8300. In addition to the amounts required under the bond, bail agents may also require additional collateral. Such collateral is related to the posting of the bond and is considered part of the transaction.

4.26.12.9  (06-01-2006)
Other Retail Overview

  1. Other retail businesses sell items in exchange for cash, checks, wire transfer of funds, and/or financing arrangements. These businesses include, but are not limited to, the following:

    • Antique Dealers

    • Art Dealers

    • Auctions

    • Coin and Precious Metal Dealers

    • Electronics Stores

    • Furniture Stores

    • Furriers

    • Pawn Shops

    • Retail Jewelers

    • Sports Memorabilia Dealers

    • Stamp Dealers

  2. Many retail stores are owned and operated by large corporations identified under many different names at numerous locations. These stores maintain an inventory of items for sale. Many smaller specialty shops especially antique and art dealers, hold costly items. The potential for cash payments over $10,000 is extremely high.

4.26.12.9.1  (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. Cash - Cash includes the coin and currency of the United States, or any other country, which circulates and is accepted as money in the country in which issued. In addition, after February 2, 1992, cash also includes cashier’s checks, bank drafts, money orders or travelers checks having a face amount of not more than $10,000 that were:

    1. Received in a designated reporting transaction, or

    2. Received in any transaction in which the recipient knows or has reason to know that such instrument is being used in an attempt to avoid reporting the transaction as required by IRC 6050I.

  4. Designated Reporting Transaction - A retail sale of a consumer durable, collectible or a travel or entertainment activity.

  5. Consumer Durable - An item of tangible personal property of a type that is suitable under ordinary usage for personal consumption or use and has a sales price of more than $10,000. The item can reasonably be expected to be useful for at least one year under ordinary usage.

    Note:

    While an automobile with a sales price in excess of $10,000 is a consumer durable whether or not sold for business use, a dump truck or factory machine is not.

  6. Retail Sale - Any sale made in the course of a trade or business, if that trade or business principally consists of making sales to ultimate consumers.

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

4.26.12.9.2  (06-01-2006)
Records Commonly Found

  1. Records most commonly found include:

    • Bank statements

    • Cash receipts journal

    • Cash register tape

    • Customer cards

    • Customer files

    • Customer invoices and receipts

    • Duplicate deposit slips

    • Installment records

    • Inventory control sheets

    • Lay-away records

    • Professional appraisal

    • Sales journal

4.26.12.9.3  (06-01-2006)
Terminology

  1. Auction Barn/Yard - Can include livestock and heavy equipment sales.

  2. Auction House - Also known as estate sales and private auction. There are generally valuable high-ticket items, such as antiques, that may be auctioned.

  3. Bid - Amount offered to purchase.

  4. Bullion - Precious metal in the form of bars or ingots.

  5. Customer cards - Record of customer purchases or account receivable cards.

  6. Furrier - Seller of apparel and accessories made from animal fur or artificial furs.

  7. In-house financing - Financing that is provided by the business without using outside sources.

  8. Loan Agreement - The loan contract containing the term of the loan.

  9. Pawn Ticket - Record of stock held for customer retrieval by a specific date in exchange for cash.

  10. Public Auction - Can draw large cash transactions depending on items presented.

  11. Rental Purchase Plan - A plan that allows the rental of goods such as furniture, electronics or appliances that will eventually allow the customer to own the items.

  12. Silent Auctions - Sealed bids are made on items - most often seen in art and antique sales.

4.26.12.9.4  (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.

4.26.12.9.4.1  (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. The examiner should become familiar with the general business structure for retail stores, which may include:

    • Owner/Corporate Headquarters

    • Store/Operations Manager

    • Office Manager

    • Sales Staff

    • Bookkeeper

    • Cashier

4.26.12.9.4.2  (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.

4.26.12.9.4.3  (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 Forms 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 Form 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 constitute 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.

4.26.12.9.4.4  (06-01-2006)
Review of Records

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

    1. Transactions occurred which involved the receipt of reportable cash in excess of $10,000;

    2. There are consecutive or related reportable transactions in excess of $10,000; and,

    3. Forms 8300 were filed on such transactions

  2. The examiner should be alert to identify transactions that may be 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:

    • The date funds were received;

    • The amount;

    • The date funds were deposited;

    • The name of the transactor;

    • The receipt number; and,

    • 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 other supporting documentation needed. The examiner should record the location of the original records pertaining to these transactions.

  6. The principal record will be a combination sales/cash receipts type journal. Some preferred customers have information cards kept that may include names and addresses, items purchased, purchase prices, and methods of payment.

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

  8. 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.

  9. 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.

  10. For additional information refer to IRM 4.26.11 .

4.26.12.9.4.5  (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 Forms 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 Forms 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.

4.26.12.9.5  (06-01-2006)
Money Laundering Trends

  1. The business and/or the customer can be involved in potential money laundering schemes.

  2. The examiner must focus on both the business and the transactor(s) during the Form 8300 compliance review.

  3. 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;

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

    6. Treating the purchase of related items as separate sales.

  4. 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.

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

    .

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

4.26.12.9.6  (06-01-2006)
Form 8300 Review Techniques

  1. Cross reference customer cards for various purchases and form of payment. Look for matching items of jewelry that were agreed upon at the same time and purchased on different dates. Also, sales of large ticket items with accessories ordered and paid for at a later date. For example, stereo unit with speakers, cabinet and television, or other electronic items all ordered and agreed upon at purchase but paid for at different times.

  2. Identify multiple payments that are made in currency, or items defined as cash, on the same day or numerous days by customers. If this type of transaction occurs, review all available information to determine whether a Form 8300 was required.

  3. Watch for manipulation of inventory items to conceal the sale of large ticket items. If this is found, referral to the BSA coordinator may be necessary.

  4. A review of appraisals may lead to incorrect receipts or large cash sales which were not recorded. Again, this should be discussed with the BSA coordinator for possible referral.

  5. Identify multiple items purchased at the same time but recorded as separate purchases.

  6. Review in-house financing where multiple payments may exceed $10,000 during a 12-month period.

  7. Use of money orders and cashiers checks less than $3,000 could be an indication of structuring.

4.26.12.10  (06-01-2006)
Retail Vehicles Overview

  1. Retail vehicles are sold in exchange for cash, checks, wire transfer of funds, and/or financing arrangements.

  2. Most of these businesses also provide parts and service to support products sold.

  3. Retail vehicle dealers discussed in this subsection include but are not limited to the following:

    • Aircraft dealers

    • All Terrain Vehicle (ATV) dealers

    • Farm implement/equipment dealers

    • Motorcycle dealers

    • New auto and truck dealers [See NOTE at IRM 4.26.12.9.1(5) ]

    • Recreational vehicle dealers

    • Snowmobile dealers

    • Tractor-trailer dealers

    • Used auto and tuck dealers

    • Watercraft (boats, yachts, etc.) dealers

  4. Generally, retail vehicle dealers are members of national, state, and local organizations and associations. The National Automobile Dealers Association (NADA) is one example. Most of the organizations provide educational information, pamphlets, and videos to dealers regarding the filing of Forms 8300. Additionally, this topic is covered at dealer conventions and meetings.

  5. Most of these businesses have separate management, sales staff, and office staff.

  6. Since most of these businesses sell consumer durables, the definition of cash includes certain monetary instruments of $10,000 or less.

  7. Some vehicle dealerships will allow certain customers to make payments over a specific period of time.

  8. Most of these businesses have multiple bank accounts with different financial institutions. Typically, there is a general operating account at one bank with direct loan funding accounts at other banks. Funds are transferred into the general account by check or by electronic funds transfer.

  9. Farm equipment dealers and tractor-trailer dealers generally do not sell vehicles considered consumer durables. Thus, cash is defined as currency for these transactions.

4.26.12.10.1  (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 retail sales of a consumer durable in a designated reporting transaction, certain monetary instruments are included in the definition of cash.

  4. There is also an exception to the reporting requirements for the proceeds of a loan. See IRM 4.26.10.

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

4.26.12.10.2  (06-01-2006)
Records Commonly Found

  1. Records most commonly found include:

    • Bank statements

    • Cash receipts journal

    • Customer deal jacket/folder

    • Duplicate deposit slips

    • Installment sales agreement

    • Invoices

    • Leasing contracts

    • Monthly reconciliation report

    • New vehicle inventory listing

    • Sales receipt

    • Salesman deal worksheets

    • Used vehicle inventory listing

    • Wire transfer ledger

4.26.12.10.3  (06-01-2006)
Terminology

  1. Add on - Additional accessories or upgrade packages added to vehicle.

  2. All terrain vehicle (ATV) includes such vehicles as:

    • 4-wheeler

    • Dune buggy

    • Off road vehicle/two track

  3. COD - Cash on delivery.

  4. Deal jacket (also known as deal folder or customer file.) A folder containing all the paperwork relating to the sale to the customer which is often filed by customer name. Information inside can include:

    • Control number of specific deal

    • Customer identification information (e.g., driver’s license information)

    • Documents required by state motor vehicle department

    • Financing and lien information identifying the existence of a loan

    • Notation of add-on accessories

    • Sales contract

    • Sales receipt

    • Salesman deal worksheet

    • Title/registration information

    • Trade-in data

  5. Dealer Group - Multiple dealerships or locations owned by the same or related persons.

  6. Dealer trade - Vehicles traded with other dealers within dealer network.

  7. Either/Or - Customer is allowed to find own financing within an agreed time. Normally, there is a cash down payment with one subsequent payment.

  8. Hold check - A written and dated check held to be deposited at a later specified date.

  9. In-house financing - The dealership extends credit to customer with customer payment made directly to the dealership.

  10. Off-site sale - Dealers relocate inventory to various locations for vehicle sales events often involving several dealerships.

  11. One Pay - Customer is granted an extended period to make payment, for example, "90-days, same as cash."

  12. Pre-owned vehicle - Term generally replacing "used vehicle. "

  13. Rebate - Allowance offered by manufacturer with specific requirements.

  14. Recreational Vehicle (RV) - Common term for trailers, campers, and motor homes.

  15. Sport utility vehicle - Commonly referred to as SUV.

  16. Trade in - Vehicle taken in and its value allowed towards the purchase of another vehicle.

4.26.12.10.4  (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.

4.26.12.10.4.1  (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. When possible, the examiner should identify all locations included in a Dealer Group.

  3. The examiner should become familiar with the common business practices of the trade or business.

4.26.12.10.4.2  (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.

4.26.12.10.4.3  (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 Form 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 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. How cash flows from parts and service departments into business accounts;

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

    13. 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 constitute the opening of an income tax examination.

  4. Additional questions relating to knowledge and intent are in IRM 4.26.11.

  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.

4.26.12.10.4.4  (06-01-2006)
Review of Records

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

    1. Transactions exist that involved the receipt of reportable cash in excess of $10,000;

    2. There were consecutive or related reportable transactions in excess of $10,000; and,

    3. Forms 8300 were filed on such transactions.

  2. The examiner should be alert to identify 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. Three payments are the norm in this industry (a deposit or down payment, the amount of loan proceeds and any balance remaining due.) The examiner should consider this in setting the scope of the compliance review.

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

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

    • The date funds were received;

    • The amount;

    • The date funds were deposited;

    • The name of the transactor;

    • The receipt number; and,

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

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

  7. Customer files are not always kept by calendar year. Often, files are kept alphabetically by customer.

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

  9. 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.

  10. 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.

  11. For additional information, refer to IRM 4.26.11 .

4.26.12.10.4.5  (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 Forms 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 Forms 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 any 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.

4.26.12.10.5  (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.

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

    6. Making a large down payment/deposit and returning several days later to cancel the deal and requesting a refund by check.

    7. Presenting an NSF or Hold check and later redeeming with currency.

    8. Purchasing several vehicles within a twelve-month period, each time "trading up" and transacting just under $10,000 in cash/monetary instruments.

    9. Making a side agreement with the business to inflate the value of a trade-in and later repurchase the trade-in.

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

4.26.12.10.6  (06-01-2006)
Form 8300 Review Techniques

  1. Retail vehicle dealers make frequent bank deposits. These deposits often include cash amounts greater than $10,000 from various sources. These cash deposits are reported on a CTR by the financial institution. Many times there are no corresponding Forms 8300 reported on the CBRS. Numerous sources of currency and monetary instruments require a greater scope and depth during the compliance review.

  2. Special attention should be given to voided receipts. They may be indicative of structuring.

  3. Identify related party transactions where an otherwise reportable transaction is split to avoid reporting. An example is a husband and wife making separate purchases to keep the total amount of the sale under $10,000.

  4. Identify relationships within and between businesses.

  5. Be aware of add-on accessories to vehicles discussed at the time of the initial purchase, but not scheduled or transacted until a later date. This is considered a related transaction.

  6. Large boats or yachts must be registered with the Coast Guard.

  7. Airplanes must be registered with the Federal Aeronautics Administration (FAA).

  8. Test dealer records by pulling a sample of deal jackets and reviewing them to insure that the process described in the interview is accurate.

  9. Where a dealership self-finances its inventory, the examiner should test that all transactions are included in the accounting records by tracing a sample of current inventory back through the accounting records.

4.26.12.11  (06-01-2006)
Wholesale Distributors Overview

  1. Wholesale distributors, including beverage and tobacco firms, sell large quantities of products to other wholesalers and retailers. Transactions can involve large amounts of cash.

  2. Full and partial payments are frequently made, providing truck drivers the cash necessary to keep the products moving. These drivers may be employed by the wholesaler or by the customer. The cash received may be applied to specific invoices or it may be applied on account, usually on a first-in, first-out basis. Drivers may collect cash payments and make daily deposits. A full understanding of company procedure for collecting payments is necessary.

4.26.12.11.1  (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. Wholesalers are not required to report the receipt of a monetary instrument unless the wholesaler knows that a monetary instrument is being used in an attempt to avoid the reporting of the transaction under IRC § 6050I.

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

4.26.12.11.2  (06-01-2006)
Records Commonly Found

  1. Records most commonly found include:

    • Cash receipts journals

    • Customer correspondence relating to orders, billings, and payments

    • Daily and monthly drivers reports

    • Drivers route receipt books

    • Duplicate deposit slips

    • Financial statements, balance sheets, and loan applications or agreements that would relate to deposits or withdrawals from bank accounts

    • Invoices on cash sales

    • Monthly checking and savings account statements

    • Records of transfer of funds by wire or collection especially between accounts

    • Sales journal, accounts receivable records, notes receivables

4.26.12.11.3  (06-01-2006)
Terminology

  1. Wholesale Distributor - A trade or business engaged in the sale of goods from one business to another. A wholesaler may act as a go-between broker to the transaction, may purchase goods for resale to other businesses, or may produce or distribute a product under a license.

  2. Driver’s Report - Shows customer name and address, quantity delivered, and form of payment. Some drivers make daily bank deposits before returning to the warehouse. A copy of deposit slips is generally attached to the daily report.

  3. Driver’s Route Receipt Books - Invoice receipt books holding copies of the daily receipts written by the drivers.

  4. E-Commerce - Sale or trading of goods and services using the Internet.

4.26.12.11.4  (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.

4.26.12.11.4.1  (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.

4.26.12.11.4.2  (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 customers 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.

4.26.12.11.4.3  (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 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 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 constitute the opening of an income tax examination.

  4. Additional questions relating to knowledge and intent are 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.

4.26.12.11.4.4  (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 on such transactions.

  2. The examiner should be alert to identify 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 appear 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:

    • The date funds were received;

    • The amount;

    • The date funds were deposited;

    • The name of the transactor,

    • The receipt number; and,

    • 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 other 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 the customers to obtain all the facts as required 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 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 RM 4.26.11.

4.26.12.11.4.5  (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 Forms 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 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.

4.26.12.11.5  (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. A wholesaler may become involved in money laundering, knowingly or unknowingly, as a result of:

    • A desire by a customer to conceal the existence of taxable income. The wholesaler may be motivated to assist in order to keep the customer’s business. Or, the customer will disguise transactions so the wholesaler will not recognize a reportable transaction.

    • A desire of a customer or possibly the wholesaler to use the wholesale activity to place funds derived from illegal sources into the legitimate economy.

  3. 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.

  4. 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.

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

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

4.26.12.11.6  (06-01-2006)
Form 8300 Review Techniques

  1. Sample and reconcile the daily driver’s receipts to the daily summary report. Then trace the daily summary amounts to the bank deposits. If your sample verifies that all funds are deposited into the bank, you can then use the bank deposit slips to trace any large currency deposits back through the records to their source to determine any reportable transactions.

  2. Review the drivers receipt books for cash payments on deliveries in excess of $10,000. Also look for multiple deliveries paid at one location, and paid in cash.

  3. If the wholesaler also owns retail outlets, a separate review should be done. See IRM 4.26.12.9for review techniques.

  4. A review of the accounts receivable should be made. If the customer is billed on a monthly or other periodic basis it may reveal transactions over $10,000.

Exhibit 4.26.12-1  (01-01-2003)
Organizational Structure of a Gambling Casino

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Exhibit 4.26.12-2  (01-01-2003)
Computerized Casino Management System

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Exhibit 4.26.12-3  (01-01-2003)
References for the Construction Industry

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