(Updated December 2023) Many commercial cannabis businesses are cash intensive. Commercial cannabis businesses not only get paid in cash, but also pay their supply chain partners in cash.
In the United States of America, commercial cannabis businesses must be aware of the Internal Revenue Service (IRS) requirements for Form 8300 when receiving over $10,000 in cash for a single or related transaction.
As of January 1, 2024, most businesses must e-file Form 8300. See, https://www.irs.gov/newsroom/businesses-must-electronically-file-form-8300-report-of-cash-payments-over-10000-beginning-jan-1-2024.
Risk Factors
Money launderers often look for cash intensive businesses to launder money from illegal activities. Laundering means converting “dirty” or illegally-gained money to “clean” money.
The government can often trace this laundered money through the payments reported by businesses. Laws passed by Congress require businesses to report these payments. Compliance with these laws provides valuable information that can stop those who evade taxes and those who profit from the drug trade and other criminal activities.
Filing
Starting January 1, 2024, the IRS mandates electronic filing (e-filing) of Form 8300 for businesses receiving over $10,000 in cash, replacing paper returns. This move aligns with updated e-filing rules for information returns, streamlining communication with the IRS. The requirement extends to businesses mandated to e-file other information returns, necessitating e-filing if they’re obligated to file at least 10 information returns, excluding Form 8300. Businesses can request waivers due to undue hardship or opt for paper filing if fewer than 10 returns are required. Exemptions apply for those with religious conflicts with e-filing technology. Late filers must self-identify, and records, including confirmations and supporting documents, should be retained for five years. The BSA E-Filing System facilitates this transition, providing a secure and free platform, ensuring taxpayer data privacy.
To file Forms 8300 electronically, a business must set up an account with the Financial Crimes Enforcement Network’s BSA E-Filing System. The IRS will ensure the privacy and security of all taxpayer data.
For more information, interested businesses can call the Bank Secrecy Act E-Filing Help Desk at 866-346-9478 or email them at [email protected]. For more information about the BSA E-Filing System, businesses can complete a technical support request at Self Service Help Ticket. The help desk is available Monday through Friday from 8 a.m. to 6 p.m. EST.
For more information about the reporting requirement, see E-file Form 8300: Reporting of large cash transactions on IRS.gov.
Notice to Payee
When a commercial cannabis business is required to file a Form 8300, the law requires the business to provide a written statement to each person(s) named on Form 8300 to notify them that the business has filed the form. This requirement to provide a written statement does not apply with respect to a Form 8300 filed voluntarily, including a Form 8300 to report a suspicious transaction involving less than $10,000.
The business filing Form 8300 must provide its identified customers with the written statement on or before January 31st of the year that immediately follows the year the customer made the cash payment.
Record Retention
The business should keep a copy of every Form 8300 it files, and the required statement it sent to customers, for at least five years from the date filed.
Penalties
Commercial cannabis businesses must comply with requirements of Form 8300 or they may be exposed to significant civil and criminal penalties, including, but not limited to:
- Failure to file Form 8300 includes civil penalties up to $25,000, or the amount of cash you received and were required to report (up to $100,000).
- Criminal penalties include fines up to $500,000, or imprisonment up to five years, or both
Red Flags
The following should be considered red flags that Form 8300 has not been appropriately addressed.
The Company has or could receive $10,000 in cash or more and:
- Specific employee(s), job role(s), or professional service providers have not been assigned the responsibility to manage the Form 8300 process
- Lack of formal processes to
- Accurately fill out Form 8300
- File Form 8300
- Provide the payee notice
- Retain required records
- Lack of risk-based training
Risk Mitigation
Commercial cannabis businesses in the US that accept cash payments over $10,000 should establish or enhance their internal control environment, risk assessment, control activities, information and communication, training, and assurance. The following is a sample of risk mitigations that should be considered:
Compliance Management Risk Mitigation
Commercial cannabis businesses should establish or enhance the internal control environment, risk assessment, control activities, information and communication, training, and assurance for compliance management.
- Assign a qualified individual to fill out and file form 8300
- Enhance the risk assessment to include an evaluation of reportable cash transactions
- Implement procedures and processes for managing form 8300, including, but not limited to
- Filling out Form 8300 accurately and completely
- The timely filling of Form 8300
- Providing notice to the payee
- Record retention
- Assign risk-based training to employees with form 8300 responsibilities that
- Cover the company’s policies and procedures
- Identify the requirements and timing for Form 8300 (useful resources: How to complete Form 8300 – Part I and How to complete Form 8300 – Part II)
- Identify the individual and company fines and penalties for noncompliance
- Provide examples of how a person may be subject to criminal penalties, including, but not limited to structuring.
- When to check the suspicious activity box on Form 8300
- Implement risk-based reporting to management to identify relationships where the cash payment was deemed suspicious
- Implement risk-based monitoring to assure that reportable cash payments are identified, Form 8300 is accurately and timely filed, and notices are provided
Vendor Management Risk Mitigation
Commercial cannabis businesses should establish or enhance the control activities and training for vendor management.
- Implement procedures and processes to
- Identify vendors that will pay in cash
- How to escalate reportable cash transactions
- Assign risk-based training to cash-based vendors about form 8300
- Determine if additional businesses will be involved in the transaction who need to be reported
