Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

The government is monitoring transactions

- by Alan Duvall 

Published in Dayton Daily News  January 14, 2007 

“If we don’t get our thing together, Big Brother will be watching us.”  Rare Earth. 

In order to monitor illegal activities and close an estimated $300 billion annual tax gap, Congress has instituted a tracking system for income and cash transactions.  

Businesses must annually disclose on Forms 1099 payments to non-corporations in excess of $600 for services, rents, interest and real estate sales.  Forms 1099 must be provided income recipients by January 31 and mailed to the IRS by February 28.   

Business payments to attorneys or law firms must be reported even if the firm is incorporated.  This controversial provision has survived challenges such reporting violated the attorney-client privilege. 

Recipients of more than $10,000 cash from business transactions must file Form 8300 (Form 4789 for financial institutions).  To prevent manipulation, related multiple transactions totaling $10,000 or more must likewise be reported.   

Form 8300 is to be filed with the government by the 15^th day following the relevant transaction with a like statement mailed to the payer each January 31. 

Many individuals are quite aware of the $10,000 reporting system, but they don't know it can be illegal to deliberately structure dealings to avoid the reporting law.

Penalties for incorrect completion or failure to file information returns can be severe.  Unintentional failures are subject to $50 per return penalties (maximum $100,000 per year for small businesses).  Intentional infractions can generate massive penalties equal to the greater of $25,000 per return or the amount of cash actually received, subject to a maximum $100,000 per transaction.

In one case, the IRS attempted to assess an auto dealer a $100,000 penalty for failure to report four cash transactions.  The court tossed out the claim on the basis the dealer had a reporting system in place and the infractions were not intentional.  

The IRS did claim victory in another case involving a trucking company which regularly collected and deposited cash on behalf of its customers.  Even if collecting currency as an agent for others, the trucker was ultimately held responsible for report filing. 

As a consequence of these complex rules, January remains an administrative nightmare for many companies who must identify and file returns for prior year reportable transactions. 

“How does one assert his power over another ... By making him suffer.  Obedience is not enough.”  George Orwell

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.