Q: I am an independent contractor of a large host agency. One of my clients likes to pay only in cash. For example, for a recent cruise for his family, he paid with a $16,000 wad of money. I don’t know why he pays this way or how he gets the cash, but I have a suspicion that it may be from illegal drug sales. I have heard that there is some law requiring merchants to report large cash transactions. Would you explain that law and the penalties for not reporting? Does the law apply even when there is a legitimate reason for using cash, such as when the client doesn’t have a credit card and we have a policy against accepting checks for last-minute travel?
A: First, many host agencies prohibit cash transactions, so you should check your independent contractor agreement and any of the host’s other rules before you take cash again. The risks of fraud and embezzlement are high, and certain states require cash to be placed in trust accounts that the host may not even have.
Second, assuming that you are allowed to take cash, it is certainly not illegal, but federal law requires that businesses report clients’ cash payments of more than $10,000 to the IRS by filing Form 8300. You can download the form at irs.gov/forms-pubs/about-form-8300. To file it, you mail it to a post office box in Detroit no later than 15 days after the transaction.
In addition, by Jan. 31 of the following year, you must send the client a notice with your name, address and phone number; the amount of the client’s cash you reported to the IRS; and a statement that you provided this information to the IRS. There is no standard IRS format for this notice, although it would be similar to a Form 1099.
These obligations belong to the business, not an individual travel agent working as an employee. If you are an independent contractor of a travel agency, the rules apply to you as a self-employed businessperson, not to your host.
“Cash” is defined as U.S. or foreign currency. The law applies to a lump sum of more than $10,000 as well as two or more payments totaling more than $10,000 that are part of a single transaction or related transactions.
The reporting requirements apply whether or not you suspect anything illegal, and they apply even when there is a legitimate reason for paying in cash.
The penalty for intentionally disregarding the reporting requirement is huge: the greater of $25,000 or the amount of cash you received and were required to report (up to $100,000). There are similar penalties for failure to furnish the client with the required statement by the Jan. 31 deadline.
Now that you know what’s involved, you may well decide not to take large amounts of cash.
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