Because of the complexity of Internal Revenue Service Code Section 6050I, this article is broken down into five parts: (1) Enactment of Section 6050I, (2) Operation of Section 6050I, (3) Use of Section 6050I in Law Enforcement, (4) Form 8300 Disclosures, and (5) Tax Policy. So hold onto your seats as we peel off the layers of Section 6050I to expose its true purpose.

C. Use of Section 6050I in Law Enforcement

Why is Form 8300 of interest to federal authorities? Primarily for its use in combating money laundering. The government devotes vast resources to identifying and locating income derived from criminal activity. While precise figures are not available, federal law enforcement officials estimate that between $100 billion and $300 billion is laundered each year.

Like CTRs, Form 8300s assist law enforcement to combat money laundering by making it difficult for the proceeds of narcotics trafficking to enter the financial system without creating a paper trail. Drug traffickers deal exclusively in cash and are among the largest users of money laundering schemes. They face a common problem – how to deposit large amounts of cash without drawing attention to themselves.

Those who are ignorant of the Form 8300 reporting requirement or simply not sophisticated enough to structure their deposits may attempt to make a single deposit in an amount greater than $ 10,000. They might think that law enforcement will never detect their transaction amidst the huge volumes of legitimate transactions that occur each day.

That thinking will earn the drug trafficker a one-way ticket to the state penitentiary. A large cash deposit of this kind is the most vulnerable to being detected and will undoubtedly lead law enforcement officials to the suspect’s doorstep. But even if the trafficker is smart enough to structure deposits under the $ 10,000 threshold, that will do little to help him evade the Form 8300 reporting requirement. That’s because Congress contemplated “structuring” when it drafted Section 6050I.

Section 6050I addresses the problem of structuring in a way that prevents parties from breaking a deal down into several smaller transactions in an attempt to avoid the reporting requirements. Thus, a series of payments, which in themselves do not total $ 10,000, must still be reported if they amount to $ 10,000 in the aggregate and are made pursuant to a single transaction within one year. A recipient is required to report “related transactions” if he “knows or has reason to know that each transaction is one of a series of connected transactions.”

Not only does engaging in a series of “related transactions” without filing Form 8300 run afoul of section 6050I’s reporting requirements, but it has also been criminalized. In 2001, Congress amended 31 U.S.C. § 5324 to criminalize structuring that evades Form 8300 reporting requirements. Engaging in a series of “related transactions” without filing Form 8300, as discussed above, also violates statutes prohibiting the “structuring” of transactions in an attempt to willfully prevent a bank from filing a currency transaction report.

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Footnotes for full post

i – Gerald A. Feffer et al., Proposals to Deter and Detect the Underground Cash Economy, in Income Tax Compliance: A Report of the ABA Section of Taxation Invitational Conference on Income Tax Compliance 293 (1983); see also Michael C. Durst, American Bar Ass’n Sec. of Taxation & American Bar Found., Report of the Second Invitational Conference on Income Tax Compliance, 42 Tax Law. 705 (1988) (discussing problems of income tax compliance in the United States and policy recommendations).

ii – United States General Accounting Office, Report to the Joint Committee on Taxation, Reducing the Tax Gap: Results of a GAO Sponsored Symposium (GAO/GGD-95-157 1995).

iii – The Secretary of Treasury, and by delegation the Commissioner of Internal Revenue are given broad authority to administer the federal tax law: Except where such authority is expressly given by this title to any person other than an officer or employee of the Treasury Department, the Secretary shall prescribe all needful rules and regulations for the enforcement of this title, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue. I.R.C. 7805(a) (1994). The Justice Department represents the Commissioner of the Internal Revenue Service in Article III Courts.

iv – I.R.C. 6050I(a) (1994). Businesses subject to the Bank Secrecy Act, e.g., banks and other financial institutions, are excepted from section 6050I’s reporting provisions. Id. 6050I(c)(1)(B).

v – FinCEN Form 8300: Report of Cash Payments Over $ 10,000 Received in a Trade or Business, http://www.irs.gov/pub/irs-pdf/f8300.pdf (last visited Nov. 13, 2009).

vi – Id.

vii – Id.

viii – Id.

ix – Id.

x – United States General Accounting Office, Report to the Chairman, Permanent Subcommittee on Investigations, Committee on Governmental Affairs, U.S. Senate, Money Laundering: State Efforts to Fight it are Increasing but More Federal Help is Needed (GAO/GGD-93-1 1992) [hereinafter GAO Report].

xi – Harrington, 24 Hofstra L. Rev. at 637 (1996).

xii – Id.

xiii – Treas. Reg. 1.6050I-1(b).

xiv – Treas. Reg. 1.6050I-1(c)(7)(ii).

xv – 31 U.S.C. § 5324(b).

xvi – I.R.C. 6050I(f)(2) provides for both criminal and civil penalties to be assessed against any person who “causes or attempts to cause a trade or business to fail to file a return.” I.R.C. 6050I(f)(1)(A) (1994). The provisions of 31 U.S.C. 5313 require financial institutions – which are otherwise exempt from the provisions of 26 U.S.C. 6050I – to file “currency transaction reports” whenever they receive cash deposits in excess of $ 10,000. 31 U.S.C. 5313(a) (1994).

xvii – See Peter Reuter & Edwin M. Truman, Chasing Dirty Money: The Fight Against Money Laundering 66 (2004); Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, 102 Stat. 4181.

xviii – See I.R.C. § 6103(i)(8) (2006); see also Internal Revenue Manual §§9.5.5.4.8.4, 9.5.5.4.8.5 (2007) (setting forth the elaborate procedures an IRS agent must follow to disseminate a Form 8300 under Title 26 authority).

xix – Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, Pub. L. No. 107-56, tit. III, § 365(a), 115 Stat. 272 (codified as amended at 31 U.S.C. § 5331 (2006)).

xx – See Internal Revenue Manual § 9.5.5.4.8 (2007) (“The rules under Title 26 strictly limit [Form 8300] disclosures, whereas the rules under Title 31 are less restrictive.”).

xxi – I.R.C. 170 (1994) (charitable deductions).

xxii – I.R.C. 162(e) (denial of exclusion for lobbying expenses) and I.R.C. 5881 (excise tax on corporate “greenmailers”).

xxiii – Al Capone was finally convicted and sent to prison on income tax evasion. David Laro, The Evolution of the Tax Court As an Independent Tribunal, 1995 U. Ill. L. Rev. 17, 21.

xxiv – Harrington, 24 Hofstra L. Rev. at 670.

xxv – Id.

xxvi – See, e.g., Eric A. Lustig, The Emerging Role of the Federal Tax Law in Regulating Hostile Corporate Takeover Defenses: The New Section 5881 Excise Tax on Greenmail, 40 U. Fla. L. Rev. 789 (1988); Edward A. Zelinsky, Greenmail, Golden Parachutes and the Internal Revenue Code: A Tax Policy Critique of Sections 280G, 4999, and 5881, 35 Vill. L. Rev. 1 (1990).

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