I have several law enforcement family members. Each have different backgrounds, serve in different communities, and range in both years of service and ranks, which span from street officer to detective. At the last family get together, there were endless hours of shop talk and comparisons between policies, procedures, and scenario-based training. I am biased to scenario-based training because I learn by example.
A little bit of training upfront could avoid some pain later.
These endless discussions reminded me of a conversation I had with a colleague about the FinCEN form 8300. His client had a customer transaction that included 14 money orders at $750 a pop. I will do the math for you, that is a total of $10,500 in money orders. The dealership did their due diligence and filed an 8300.
This unusual situation highlights that dealerships across the country should have cash reporting policies and procedures in place.
What is FinCEN Form 8300?
As discussed in last month’s article on OFAC, the feds have processes in place to thwart money laundering. The Financial Crimes Enforcement Network, also known as FinCEN, is the agency that controls the recording and record keeping of the FinCEN form 8300. Dealerships and financial institutions are required to complete a Form 8300 on transactions with a cash payment more than $10,000. This form provides a trail for the authorities to investigate criminal activity and/or terrorist organizations.
The three types of cash transactions that must be reported by the dealership include:
- A single cash transaction that involves more than $10,000
- Any two or more related transactions that involve more than $10,000 in cash
- Any suspicious transactions that have the appearance of money laundering even if it is under $10,000
According to the IRS, cash is not limited to U.S. currency. If less than $10,000, cashier’s checks, traveler’s checks, and money orders are considered cash instruments. If the above cash instruments are more than $10,000, the financial institution that issued the cash instrument is responsible for filing the 8300. Should your dealership accept one of the above cash instruments and combine it with other currencies that total $10,000 or more, your dealership is required to file the 8300.
Personal checks provided for a transaction are not considered a cash instrument. Personal checks provide the customer name, account number and other identifying information, which makes for its own paper trail. Therefore, an 8300 is not required.
Now that we had a crash course in cash reporting 101, let us get back to the point, scenario-based training, with a few real world examples.
Scenario 1: A consumer purchases a new vehicle and puts down a total of $17,000. The consumer gives the dealer $5,000 in cash, writes a $6,000 personal check, and comes in the next day with a $6,000 money order.
Scenario 1 Response: Yes, the dealer should complete a form 8300. The consumer provided a $6,000 personal check which is not considered a cash instrument. What the dealer should recognize is the $5,000 in U.S. currency and a $6,000 money order. These two cash instruments equaled $11,000 and therefore trigger the form 8300 requirement.
Scenario 2: A recent college school grad walks into a dealership to buy a used car with his graduation earnings. He banked $12,000 and wants to put down $10,500. He hands over a cashier’s check for the $10,500 from his financial institution.
Scenario 2 Response: No, the dealer is not required to file a form 8300. The consumer provided a cashier’s check totaling $10,500 which is more than the $10,000 threshold. Therefore, the financial institution that issued the cashier’s check is responsible for filing the 8300.
Scenario 3: A couple comes into the dealership to purchase a new, top-of-the-line sports car. They agree to put down a total of $20,000. The wife hands over $5,000 in cash and the husband has his bank wire over the remaining $15,000.
Scenario 3 Response: No, the dealer is not required to file a form 8300. Wire transactions are not considered cash and therefore do not require a form 8300. Additionally, since the U.S. currency was less than $10,000, the dealership is not required to file an 8300.
Scenario 4: A consumer comes into the dealership to purchase two vehicles. The purchases are three weeks apart. In the first transaction, the consumer puts down $7,000 in cash. When the customer returns three weeks later, he puts down $7,000 cash on the second vehicle.
Scenario 4 Response: Yes, the dealer is required to file a form 8300. The consumer put down a total of $14,000 in U.S. currency on two related transactions, therefore the dealership is required to file a form 8300.
Scenario 5: A consumer strolls into the dealership ready to purchase a vehicle. The consumer puts down $3,000 in cash and a $6,000 cashier’s check. Before handing over the down payment, the consumer asks multiple questions about their reporting requirements to the IRS — questions such as what is the minimum amount the dealership is required to report — and he confirms if his down payment is under that required amount.
Scenario 5 Response: Yes, the dealership would be required to file an 8300. Even though the total down payment amount was under the $10,000 threshold, this would be considered a suspicious transaction. The consumer was asking questions about the requirements for filing. It raises suspicion, so if the dealer has any doubt, he should complete the form.
Scenario 6: A consumer comes into the dealership expecting to purchase a vehicle with all the bells and whistles. He is specifically interested in navigation, leather seats, heating/cooling seats, and tinted windows. After negotiations, he agrees to purchase a vehicle that fits his budget and foregoes some of the extra features. He puts down $8,000 in cash, signs the papers and is sent on his way. Three months later, the customer came back to the dealership and adds a couple “extras” to the vehicle. The invoice total was $2,500. The customer pays in cash.
Scenario 6 Response: No, the dealership would not be required to file an 8300. Since the “extras” were not part of the original transaction three months prior, the dealership has no obligation to file a form 8300, even though they received more than $10,000 in cash from the customer.
Reporting and Retaining Requirements
FinCEN Form 8300s must be filed within 15 days from the date the transaction occurs. If the dealership has a transaction where the cash is delivered over several days, the 15 days begin once the dealership receives more than $10,000. The dealership also has an obligation to send a statement to the customer by January 31st of the following year notifying them an 8300 was filed.
Recommendation and best practice states that a dealership should retain a copy of the 8300 and the customer statement in the deal jacket or in a folder maintained by the officer manager. In addition, the dealership is should retain a copy of form 8300 for five years. Failure to file an 8300 could result in civil and criminal penalties.
Should you have questions or need a copy of FinCEN Form 8300, visit the IRS website: https://www.irs.gov/businesses/small-businesses-self-employed/irs-form-8300-reference-guide
This is serious stuff that could subject the dealership to significant fines after an audit. A little bit of training upfront could avoid some pain later.
Penelope Bell is an associate with gvo3 & Associates. gvo3 & Associates is a consulting firm who specializes in developing and implementing a compliance management system for dealers around the country.