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The IRS’s Office of Chief Counsel recently published a memorandum providing information for cannabis companies struggling to comply with the completion of Form 8300, which must be filed every time a company receives a cash payment over $10,000. The memorandum was issued in response to a series of questions from Bank Secrecy Act examiners working with cannabis industry companies and offered a variety of helpful guidance regarding the proper completion of Form 8300. Among other things, the memorandum clarified that companies are not required to check the “suspicious transaction” box in the form’s first line merely because they are involved in the cannabis industry.
Form 8300 can be common in the cannabis industry due to the frequent use of cash and the difficulty that some companies can have securing suitable banking arrangements. Because of the ongoing tension between state and federal law regarding cannabis, it can be difficult for companies to comply when reporting to the federal government with respect to their cannabis business activities.
The memorandum provided helpful guidance with respect to several questions regarding proper completion of the Form 8300, including the following:
Reporting the Type of Transaction and Description of Services
In Part 3, line item #33, when reporting the type of transaction in which the cash was received, companies should select Box J “Other.” Then, when providing the specific description of services in line item #34, companies should either:
- provide a specific description such as “cannabis flower invoice to ______”; or
- if the company does not want to include the word cannabis/marijuana in the specific description, use NAICS code 11 – “Agriculture, Forestry, Fishing and Hunting” or use a more appropriate subcategory code such as 424590 – “Other Farm Product Raw Material Merchant Wholesalers.”
Suspicious Transactions and Required Notifications
Companies should not mark the “suspicious transaction” box in line item 1 of Form 8300 defensively just because they are involved in the cannabis industry; they must have some other reason for suspicion.
Even if a business does mark the “suspicious transaction” box, that does not relieve it of the obligation to notify the payer of the cash that a Form 8300 was filed identifying the payer. If the “suspicious transaction” box was checked, the business should provide a written notification statement instead of a copy of the Form 8300, even if that is the typical practice of the business, to avoid disclosing to the payer that the form was marked suspicious.
If the business has a genuine fear for its safety if it was to send such a notification, it must keep a written record of its decision not to send the notification and its justification for not doing so, which will be reviewed by the examiner to confirm if the fear was legitimate. If the examiner disagrees, the business may still be subject to a penalty for failure to notify.
Intentional Disregard/Willful Penalties
Companies should not ignore correspondence from the IRS Bank Secrecy Act Support team, nor should they continue to operate in violation of guidance previously provided by their IRS Bank Secrecy Act Exam team. If they do so, they may be subject to intentional disregard/willful penalties.
For example, a company may be subject to intentional disregard/willful penalties if, after the IRS Exam team formally informed such company of the requirements and the risk, the company continues to do business with a customer who insists on paying in cash and refuses to provide the information necessary to complete Form 8300 (such as the customer’s EIN/TIN).
Cash Payments Between Related Entities
When determining if cash payments between related entities require the filing of a Form 8300, the controlling factor is whether the entities share a single EIN for tax reporting purposes. Even if the entities share a common corporate parent and are located in the same building, if each entity has its own EIN, then a Form 8300 is required for transfers between the entities.
The Form 8300 in question can be filed either by the subsidiary entity receiving the payment or by the common corporate parent.
Reporting and Verification Obligations
When completing a Form 8300 for a cash transaction, filers are required to include the EIN/TIN (and provide the notifications described above) for all parties involved in the movement of the cash, including (if applicable) cash courier services and the individual driver working as an employee of such cash courier service.
Companies are required to verify the name and address of every individual reported on Form 8300. Driver’s licenses, state cannabis license cards and other common forms of identification are acceptable for that purpose if they contain a photo, the employee’s name, and a current expiration date. If they do not contain an address, the company must take steps to separately verify the address, such as a separate form of identification or a utility bill/account statement with the proper name and address.
A complete copy of the IRS FAQ memorandum can be found at this link: irs-form8300-marijuana-cash-payments.pdf (documentcloud.org).
For any questions or concerns, please reach out to Andrew M. Halbert ([email protected]), Joshua Horn ([email protected]) or another member of the Fox Rothschild LLP Cannabis Law Practice Group.
