By: Nick Richards and Keith Buckley
The current state of the cannabis industry has required many cannabis business and ancillary business to deal directly with cash. But are you aware of the reporting requirements when handling cash? A business that receives cash is required to report “cash” transactions that exceed $10,000. Transactions that exceed $10,000 must be reported by the seller on Form 8300. If received by a financial institution, a Currency Transaction Report (CRT) must be filed by the financial institution reporting the transaction, and the bank must file a Suspicious Activity Report (SAR) if received from a known cannabis business. So what are these forms?
As a cannabis owner or owner of an ancillary business, Form 8300 is a very important form. Form 8300 must be filled out to report cash payments that are, 1) Over $10,000, 2) received in a lump sum, installment payments totaling more than $10,000 received within 1 year, or previously unreported payments that were received within a 12-month period totaling more than $10,000, 3) received in the course of your trade and business, 4) received from the same buyer, 5) received in a single transaction or in related transactions. So what does a simple transaction look like and how is this form filled out?
Jack Smith works for Dispensary Co., he is tasked to pick up a shipment of cannabis from Grow Co. on July 1, 2017. The purchase order is $18,000. Jack pays $14,000 in cash to Grow Co. in exchange for the cannabis. The remaining $4,000 will be paid at a later date. Grow Co. upon receiving the cash from Jack on behalf of Dispensary Co. must now report this transaction, through filing a Form 8300.
Filling Out Form 8300
Part I – Grow Co. must obtain the payer’s information upon receiving the money. The payer is the person who actually hands over the money. In this case Grow Co. will have to obtain Jack Smith’s information even though he is only delivering the cash on behalf of Dispensary Co. Grow Co. will verify Jack Smith’s information and document this on Line 14.
Part II – Since Jack was delivering the money on behalf of Dispensary Co., Grow Co. is required to obtain Dispensary Co.’s information. This information should be readily available, but it is important to obtain the business’s EIN number.
Part III – Report the amount of the transaction and the form it was received in (i.e. cash, cashier’s check, etc.). Since the total amount of the order was $18,000 but only $14,000 was paid, this must be reported. Line 29 is the amount actually received and Line 31 is the amount that remains on the transaction.
Part IV – The reporting business, Grow Co., must include their business information and attest to the accuracy of the supplied information.
An example of a completed Form 8300 is attached here.
Form 8300 may be submitted electronically or by mailing directly to the IRS. Once received the information is added the Financial Crimes Enforcement Network (FinCEN) database. This information is crossed-referenced with other FinCEN information to verify that the transaction was not part of any criminal activities.
Failure to file this form can result in stiff penalties and, potentially, criminal prosecution.
CTRs and SARs
Financial institutions have their own reporting requirements similar to Form 8300. Financial institutions must report cash transactions on Currency Transaction Reports (CTR) if they exceed $10,000.
Simultaneously, a Suspicious Activity Report (SAR) is also required if a financial institution knows or becomes aware that a transaction involves the cannabis industry. The requirement to generate a SAR is outlined in the FinCEN Memo,, which provides guidelines to banks on how to transact with the cannabis industry. The good news is that if the financial institution knows that your business complies with the FinCEN Memo and state law, this information will be indicated on the SARs report. However, if not, financial institutes have the capability to ‘flag’ your account.
If you think this is burdensome or you want to avoid Form 8300, or triggering reports, by limiting transactions to less than $10,000, DON’T DO IT! This is called ‘structuring’ and could result in criminal prosecution. The important takeaway is to be aware when these obligations arise and report them when required. Do not alter your business to avoid these obligations.
Running a cash intensive business is difficult from a compliance standpoint and it is important to know the potential pitfalls and address them before it’s too late. Raising the stakes, the IRS is now targeting the cannabis industry for Form 8300 audits. Our tax attorneys at Dill Dill Carr Stonbraker & Hutchings, PC, are able to help you navigate your way through these pitfalls and ensure your business is compliant. Please contact us directly at (303)777-3737 or at email@example.com to request additional information or speak to our savvy tax attorneys.