Depositing Cash? Watch Out for the IRS!
DEPOSITING CASH? WATCH OUT FOR THE IRS!
Most of us don’t have occasion to deposit large amounts of cash very often. But it does happen sometimes as an individual, and if you own a small business, you might have occasion to do it a lot. If so, be careful.
In an effort to provide itself with another way to get at drug-smugglers, human-traffikers, gun runners, and money launderers, Congress passed a law some time back which requires banks to make a record, called a CTR, each time a customer deposits $10,000 or more in cash. That record must be provided to the IRS. The act authorizes the IRS to go after those who avoid the law.
None of us would argue with efforts to get at gun runners and drug lords, and it is obvious that one of the better ways to track them and stop them is by monitoring their money dealings. But the CTR law is stated very broadly, providing for civil and/or criminal penalties against people who may be skirting the requirement, even though there is no evidence of any other criminal activity. Also, the IRS can get you convicted if you avoid the CTR process, even if you didn’t know that avoidance violates a law.
For the last six months, we have been representing a small businessman who, unknowingly, ran afoul of the CTR law and who has paid dearly for doing so.
Our client owns a gun shop. Apparently, during the year following President Obama’s election, the demand for guns went through the roof. As a result, our client’s business soared, and much of the revenue he took in was cash. Because his bank was not close, the trips there took more time than he wanted to lose, and the time spent filling out CTRs made it even worse. So he began the practice of making cash deposits of even amounts just under $10,000 (e.g., $9600,$ 9450, etc.). Eventually, he had done this enough times that the practice put up a red flag for the IRS. A bank official informed my client that what he was doing was illegal, and my client stopped immediately. But it was too late. The IRS garnished his account and confiscated almost $37,000.
After six months negotiating, and with the cooperation of a very open-minded U.S. Attorney named Paul Rood, we managed to get 40% of the client’s money back. That was a miraculous result given that, according to what we were told, no one had ever gotten money back after a CTR confiscation. But the client still lost a considerable amount of money, and had to pay us (there is no provision for getting your attorney’s fees back).
The banks have changed their CTR procedure. When you make a $10,000 plus cash deposit, they will only ask your profession and take some information off your driver’s license, because the rest of the information can be found on their computers. But a word of warning. As a result of my experience with my client, and knowing that many bank employees are minimum-wage, I insist while I’m still there that they do a CTR and I get their confirmation that they have done so before I leave, because if the bank doesn’t bother, I may find myself in hot water with the IRS.