If you’re in the cannabis industry, chances are you deal with large amounts of cash. But are you aware that the IRS requires you to file a special form anytime you receive a cash payment greater than $10,000? And that the filing must be made within 15 days, or you could be subject to a hefty fine or more?
It’s called Form 8300, and here’s what cannabis cultivators need to know about it.
What is Form 8300?
Form 8300, titled “Report of Cash Payments Over $10,000 Received in a Trade or Business,” applies to any trade or business, including cultivators. This form is specifically about cash payments greater than $10,000 that are made in one transaction or multiple but related transactions.
Why do cultivators have to be concerned about Form 8300?
One of the primary objectives of the IRS is to seek out anyone who would be deemed a tax evader, subjecting them to an audit to recover money that was owed as taxes. The IRS is acutely aware that the legal cannabis industry is almost exclusively cash-based, due to strict banking regulations.
Therefore, the IRS likely suspects that there are those in the industry who are failing to file tax information required by Form 8300. It is also reasonable to conclude that the IRS likely suspects that professional cultivators will receive large cash payments for sales made to dispensaries.
When does a cultivator have to fill out and submit Form 8300?
Form 8300 must be filed if the following criteria are met:
It should be noted that ALL of the criteria above must be met to require a Form 8300 filing; also, “cash” means cash, cashier’s checks, money orders, bank draft or traveler’s checks. If you are unsure, contact a tax attorney or accountant.
Timeline to file: Generally, a Form 8300 must be filed within 15 days after the transaction or the installment payments reach $10,000. If the 15th day falls on a Saturday, Sunday or holiday, the business must file the report on the next business day.
Who must receive a statement of your Form 8300?
You must give a written or electronic statement to each person named on a required Form 8300 on or before January 31 of the year following the calendar year in which the cash is received. The statement must show the name, telephone number and address of the information contact for the business, the aggregate amount of reportable cash received, and that the information was furnished to the IRS. Keep a copy of the statement for your records.
To access the actual Form 8300, see the additional resources below for the link to the IRS site.
What information must be on the Form 8300?
What are the consequences for not filing?
There are both civil and criminal penalties for failing to file a Form 8300. Intentionally failing to report has a minimum penalty of $25,000. Penalties can also be imposed if the IRS believes that there was an attempt to structure payments in a way that would try to avoid reporting and paying these taxes, which include not just financial penalties but criminal penalties as well. See additional resources listed below for the full schedule of penalties.
How does a cultivator best prepare for filing a Form 8300 or an audit?
Recordkeeping is key to a smooth filing and enduring an audit, should it be conducted by the IRS. Becoming familiar with the form and understanding what information the form asks of the filer will allow for the proper information gathering at the outset of the business transaction. Records pertaining to Form 8300 must be kept for a period of five years.
What must you do during an audit?
Audits—notified by mail or by phone and mail—can be conducted by the IRS through the mail or by interview. Cultivators should be aware that the information gathered during an audit is primarily for tax purposes, but the information can be passed along to law enforcement agencies. This is why the best advice for a cultivator who receives a notice of a pending audit is to retain a representative. You have a right to a representative during an audit. Tax attorneys, especially ones with a history of working with cultivators or those in the cannabis industry, will help guide a cultivator through the actual audit process.
But not only that: They will also help prevent a cultivator from answering any questions that could have longer-term legal consequences, such as making an admission that could be used in a criminal law context.
Additional Resources:
Cultivators who would like to become more knowledgeable about Form 8300 can find the IRS link with a full outline on the form itself, as well as examples:
Form 8300: https://www.irs.gov/pub/irs-pdf/f8300.pdf
Information on Form 8300 with examples: https://www.irs.gov/businesses/small-businesses-self-employed/irs-form-8300-reference-guide
IRS Publication 17, which explicitly outlines that money made from illegal activities must be reported:
https://www.irs.gov/publications/p17/ch12.html#en_US_2015_publink1000172062
Tax Payer’s Bill of Rights: https://www.irs.gov/pub/irs-pdf/p1.pdf
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