Dollar Banknotes Counting
Dollar Banknotes Counting

8300 forms and those pesky related transactions

This is another installment in a series of articles meant to keep members from making the same mistakes that have proven costly to their competitors. This article will deal primarily with 8300 forms and when it becomes necessary to file one.

Hands down I get more calls about 8300 forms than anything else. I get them sent to me by fax, and they are emailed so I can check them on my cell phone. Most of the time, all are done correctly. To me, this reinforces the fact that we just don’t do many of them, so it will take a while to ‘get good at it’.

First things first, then. The description at the very top of the form gives a fair amount of foundational information. It states, “Report of Cash Payments over $10,000 Received in a Trade or Business”. Three important takeaways from the title are:

  1. Payments must be in CASH
  2. Transactions must exceed $10,000
  3. Money is RECEIVED by the trade or business

You are in the business of dealing with precious metals and cash, the volume of which varies greatly from day to day, and store to store. The IRS knows this. Because cash and precious metals provide anonymity to the holder, the Treasury folks have placed pawnshops on a “High Risk” list that is presented to every bank. It is the reason why banks are dumping pawnbrokers as customers. It is not guns, or anything else. You are a ‘high-risk’ business in their eyes. Reluctance to file forms feeds the illusion in their minds that you have plenty to hide and they want to identify just what that might be. Like it or not, the times are changing. Title 31 audits are becoming disturbingly more frequent. Lack of preparedness on your part may prove disastrous.

Back to the form. What is Cash? Obviously, currency (US and foreign), money orders, cashier’s checks in the amount of $10,000 or less, and traveler’s checks. All other forms of payment (checks, debit and credit cards) are traceable so we get to ignore those. For the purpose of this article, we are focusing on large transactions only. If you accept money orders in your store, do so with caution. It is highly recommended that you do NOT take money orders for large transactions, especially if they are sequentially numbered and in a large quantity. If the customer had to purchase these with cash, why didn’t they just come to you and give you cash? Because you might report it… What does that tell you about your customer? Perhaps this would be a suspicious transaction? You bet it would.

Traveler’s checks are almost obsolete, so we won’t spend any time on those, but the same caution applies as for money orders.

Transactions in a bank or other ‘financial institution’ are subject to CTR filings. These are the equivalent to our 8300 forms. This means that if a customer enters a bank with $10,000 and gets a cashier’s check, the CTR is not filed. Why? Go back to #2 above. The transaction has to be greater than $10,000. This is a round number and a very popular amount imprinted on a cashier’s check. It is still cash! If this check is combined with cash to complete a transaction, then you need to file an 8300. If that cashier’s check was for a penny more, then you would be off the hook. Why? Because the bank filed on the check already relieving you of the duty to do so.

Your job is to identify how much “cash” was brought to the table. If you can eliminate certain parts of the transaction due to payment by debit card perhaps, and the total amount drops to $10,000 or less, then you do not have to file the 8300. Normally this is easy to identify. However, we need to look at ‘related’ transactions since that is where the confusion occurs, both at a business and an IRS level. Follow along carefully here.

8300 filings are required when:

  1. A single customer, in a single event, on a single day presents you with over $10,000 in cash for any purpose (usually retail sales or pawn redemptions of any number);
  2. A single customer, in multiple events, on a single day presents you with over $10,000 in cash for any purpose (usually retail sales or pawn redemptions of any number);
  3. Multiple customers for the benefit of a single customer, in multiple events, on a single day present you with over $10,000 in cash for any purpose (usually retail sales or pawn redemptions of any number);
  • A single customer, or multiple customers for the benefit of a single customer, in multiple events, over a 24-hour period present you with over $10,000 in cash for any purpose (usually retail sales or pawn redemptions of any number);
  • Related transactions where the combination of interest and principal payments made with cash over a rolling 365-day period exceed $10,000.

Wait a minute. What did the last one say? Start at the beginning and read them again slowly. Each one is built on the last. Related transactions are effectively any transactions that are tied together by a time component. Since money laundering and tax evasion involve a common, and simple to detect, tactic known as ‘structuring’, you are required to watch for transactions that might occur over several days as a way to avoid the 8300 filing. Although the actual requirement is “24 hours”, it is common practice to count two consecutive business days as the same thing. So, let’s look at examples.

If a customer comes in at 10:30 on Day #1 and gives you $8,000 in cash and then comes back at noon on Day #2 and gives you $3,500 more in cash, you have to file. Why? Because these transactions are “related”.

If a customer does the same thing but instead of coming in on Day #2 with the balance comes in on day #4 you are off the hook, unless you have reason to believe they are avoiding the filing of the form. They might get a pass the first time, but if they continue this type of trend, you will file a form anyway and mark it as suspicious.

So far so good? Okay. Take it a step further. If a person borrows $10,000, you know they are going to pay you back over $10,000, right? So, if that person comes in 6 weeks after borrowing the money, and pay you with interest in cash, then you file the form. What if they renewed it twice? Well, then you have to add the interest from those payments to the end total as well. Go back and read that line again. I am not making this up.

Related transactions then involve a bit of forecasting. If you can follow the last example, then what if you loan a customer $7,500 on one day on one item? You must follow that loan through to see if the payments received on it ever exceed $10,000 in a rolling 365-day period.

What if the loan was actually three different loans that totaled $7,500 on the same day? Same thing.

What if you gave a loan for $5,000 on day #1 and another for $2,500 on day #2? Is this starting to sound familiar? It should. Same thing. These are related transactions and so need to be tracked until they are either defaulted or redeemed.

Related transactions are only those transactions that are entered into within a 24-hour period. When our customers start lumping loans together to make it easier for them payment wise, that does not make these loans related. In other words, the customer who comes in on Wednesday to pay for loans due on Wednesday and then asks if she can pay for her loans due next week at the same time to save her a trip does not now have more loans added to the related pile. Only the loans that were originally generated within the 24-hour period are truly related.

The bad news is that there is not a pawn software I am familiar with that has figured out how to identify ‘related transactions’ correctly or completely. It is actually easily done with pencil and paper so why it is such a challenge for a computer is beyond my capacity to understand. The most frequent error is that they will aggregate the information and then notify you. Aggregation is the act of adding up every single transaction done by a customer in a rolling time period and once it hits $10,000, BOOM! That is dead wrong and generates paperwork and filings for nothing. The reporting provided is useless in most cases and, while useful to verify that you got the big transactions logged, it is not at all a time saver. One large software company even adds the money going out to the money coming in to get to $10,000. This is based on the CTR format used by banks and is just wrong. At no point ever is $5,000 in pawn (OUT) and $6,000 in sales (IN) going to add to $11,000 (IN) except in their program.

Bottom line, you are responsible for tracking these transactions in an attempt to fall in line with the IRS edict. Every effort you make will be blessed by the IRS though, and in this you should take solace. Those who do nothing, out of either ignorance or frustration, place themselves in the direct path of an IRS audit that will progress much further than they ever imagined. Those shops who ‘turn a blind eye’ to these filings are likely to be accused of “willful non-compliance” by the IRS, the fine for which can be six figures. The good news is that each store usually only has a small number of customers that this even pertains to. Identify these few customers and watch them. I will be waiting for your call!


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