If you own a cash-business (especially if you work in the marijuana industry – especially as a grower) then this article is for you.
I have recently heard from a colleague about a tax issue that has been causing widespread fear across the marijuana industry. I call it, the Electric Company Complex. Apparently, electric companies (such as Consumers Energy) have been contacting their marijuana grower clients (who use a ton of electricity) and informing them 0f their FinCEN Form 8300 filing requirement. If you’ve been on the receiving end of one of these letters, there are a few things you should know before you get too nervous.
To start, if you have been completely compliant with your taxes and have followed all the federal tax rules, you can relax. You have nothing to worry about. You should also make sure to follow all of your state guidelines as well, because marijuana is state-regulated and still not federally legal.
Key Insights We Are Going to Cover:
1.) What is FinCEN Form 8300
2.) Who is required to file
3.) When Form 8300 is filed
4.) Definition of “cash”
5.) What does all of this mean for me? The Electric Company Complex
- File and Pay Your Taxes
- Adhere to Section 280E Guidelines
- Get a Power of Attorney (POA)
- Will I be audited?
6.) Contact an attorney
What is FinCEN Form 8300?
IRS Form 8300 is officially defined as “Report of cash payments over $10,000 received on a trade or a business.”
The IRS Form is filed with the Financial Crimes Enforcement Network (FinCEN). So, the form’s official name is FinCEN Form 8300. But in the interest of saving time, I’ll just refer to it as Form 8300.
Why is it filed with FinCEN you may be asking? Well, because this form deals primarily with cash exchanges exceeding $10,000 and because some cash businesses have been known to be involved with criminal activity or to serve as fronts for money laundering purposes. So, the federal government uses Form 8300 as a tool to combat such nefarious schemes.
Who is required to file?
Any person in a trade or business who receives more than $10,000 in cash, or cash equivalents in a single transaction or in related transactions. A “person” in this instance includes an individual, company, corporation, partnership, etc. Related transactions are transactions between payer and recipient that occur within a 24-hour period; transactions more than 24 hours apart where a business has reason to know that each is a series of connected transactions; includes multiple payments under a single contract (e.g. a lease agreement, professional service agreement, etc.)
Allow me to illustrate. Let’s say that you own and run a business that deals mostly in cash, and that you conduct your business in a rental property that I own. And let’s say you pay your rent in cash, and over the course of a few months (or within the period of one year), you have paid me over $10,000 total in cash. I would be required to report it to the IRS by filing Form 8300. By the way – U.S. banks have a similar policy for cash deposits exceeding $10,000
When to file
The official due date for Form 8300 is the 15th day after the cash transaction occurred. So, unlike most other tax forms, the filer cannot wait for their accountant to file it at the end of the year or during tax season. It must be done immediately.
In addition to filing Form 8300, the filer must also furnish a written statement to each person whose name is required to be included on the form. The deadline for that is January 31st of the following year. The statement must include contact information for the business filing the form, the total amount of reportable cash, and notification that the business provided the aforementioned information to the IRS. This notification requirement is why so many growers in the marijuana business have been receiving letters from their electricity suppliers.
“Cash” does not only mean Cash
For purposes of Form 8300, “cash” refers to the currency of the U.S. (the American dollar) or any other foreign country. It also applies to cashier’s checks, bank drafts and money orders with a face value of $10,000 or less if: it is received in a designated reporting transaction; in any transaction where the business knows that the consumer is trying to avoid 8300 filing. This may seem a bit confusing so let’s explain.
Okay, so you are probably saying to yourself right now, “why would this apply for cashier’s checks, bank drafts and money orders with a face value of $10,000 or less? I thought the reporting threshold was for payments exceeding $10,000.” Well…if you went to the bank and asked for a cash equivalent exceeding $10,000 to pay me, the bank would have to submit an 8300 themselves. So when you turn around and give it to me, there is no need for me to report it. It has already been filed. Sometimes, however, when it comes to situations like these, people try to avoid the 8300 filing by doing something called “structuring.” An example of this would be: if you owed me $10,001 (i.e. more than the $10,000 Form reporting threshold) and paid me with an $8,000 cashier’s check, plus $2,001 in actual cash – that is “payment structuring.” Another example of structuring is if someone had cash deposits of more than $10,000 to make at the bank, but they break up the total deposit into separate deposits of less than $10,000.
If a company or person you are doing business with suspects you are structuring, they are required by law to report you and they still must file Form 8300. People caught structuring payments can be charged with a felony punishable by a fine and/or up to five years in prison.
What does all of this mean for me? The Electric Company Complex
If you own a cash business (especially as a grower in the marijuana industry), sit up and pay attention. This is information you are going to need.
File and Pay Your Taxes
At this point, everyone knows that marijuana income is taxable. You have no excuse not to file and not to pay.
When reporting your income to the government, do so honestly. It is easy for the IRS and the State Department of Treasury to catch tax cheats because tax cheats usually don’t show enough income to support their lifestyle. For instance, someone trying to cheat on their taxes may only report $60,000 while living in a home worth upwards of $500,000. Don’t be that guy.
Adhere to Section 280E Guidelines
It is also imperative that you follow Section 280E on your returns. Otherwise, you will become an easy target. A proper marijuana return should only have gross receipts and costs of goods sold – no other expenses.
Get a Power of Attorney (POA)
The IRS is completely within its rights to send a local agent to your residence at any time, unannounced, when they want to collect missing returns and/or money.
With a POA on file, however, the IRS would have to go see whoever you designated on your Power of Attorney to be your point of contact. So you will be left alone and you can rest assured that the IRS will be dealing with a tax professional speaking and acting on your behalf.
Additionally, the Power of Attorney receives copies of all correspondence sent to you from the IRS. So you can have an expert keep an extra eye on you when it comes to your tax matter(s). It is easy to miss a letter from the IRS; and so it never hurts to have someone who knows your situation and knows all about IRS protocol looking out for you.
The Power of Attorney must be an attorney, a CPA or an Enrolled Agent.
Will I be audited?
Someone filing an 8300 is not a guarantee that you are going to be audited or have any IRS issues, if everything has been done by the book. That being said, if someone (such as Consumers Energy) has filed Form 8300 and you have cause for concern, you should contact a tax attorney immediately for legal advice. And if you do get audited, you will DEFINITELY need good representation, so be sure to retain it.
Contact an attorney
The experienced attorneys at Ayar Law deal primarily in tax issues. That is all our firm does. So if you are facing an 8300 issue (or any other tax issue) please feel free to call us. We offer FREE, no-obligation advice and would love to fight for you! Call me today. 800.571.7175.
- Consumers Energy (and other electric companies) have been filing Form 8300 on marijuana growers
- IRS Form 8300 is officially defined as “Report of cash payments over $10,000 received on a trade or a business.”
- Filed with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN)
- Used to combat money laundering and other illegal activity
- What to do/remember if someone has filed Form 8300 on your cash transaction
- File and pay your taxes
- Adhere to Section 280E Guidelines
- Get a Power of Attorney
- Just because someone has filed Form 8300 does not mean you are going to be audited. If you have reason to believe you WILL be audited, be sure to retain legal counsel.
- Contact an Attorney
- Ayar Law deals entirely with tax issues. If you are facing an 8300 issue (or any other tax issue) please feel free to call us. We offer FREE, no-obligation advice and would love to fight for you. Call today. 800.571.7175