When Does a Bank Report a Deposit to the IRS?
A bank reports a deposit to the Internal Revenue Service (IRS) when an individual makes a deposit in the amount of $10,000 or more, either in one transaction or a series of transactions.
A person who receives a payment of $10,000 or more from trade or business, either in a lump sum payment or over the course of multiple payments, must report those earnings to the Internal Revenue Service (IRS), according to the IRS’s website. This requirement, however, only applies to business transactions. It does not affect personal checks. Sometimes, banks also report deposits made by individuals that amount to less than $10,000. This happens if a person suddenly deposits a larger check than normal into his or her bank account. This is considered suspicious activity, and banks are obligated to flag those deposits to ensure individuals are operating according to the law. Banks will report deposits made in the form of cash, which can include bank drafts, traveler’s checks, money orders and currency.
Money Laundering Although these laws may seem strict, they exist for a reason. Large deposits of cash into a bank account can be a sign of criminal activity, according to the IRS. Individuals who are involved in drug trades and smuggling frequently launder money from their illicit activities using substantial cash payments. Laundering money means that they convert money derived from illegal activities into “clean” money that appears to come from a credible source. To prevent money laundering, Congress passed a series of laws that require people to report cash deposits that amount to $10,000. People make these requisite reports by submitting forms to the government that identify the source of their income. By using these forms, the federal government can detect what money is deposited illegally and what cash payments are legal.
Form 8300 The form that people submit for large cash deposits is called Form 8300. An individual or a business must file a Form 8300 when meeting the requirement of receiving earnings of $10,000 or more in a business transaction. A company that produces watches, for instance, must file a Form 8300 if it earns $10,000 or more from customers purchasing products over a period of 12 months. The Form 8300 does not extend to personal transactions, however. If the same watch dealer sold his or her car for $11,000, for example, he or she would not have to fill out a Form 8300.
Reporting Requirement To help citizens determine whether or not they need to fill out a Form 8300, the IRS clarifies what constitutes a qualifying transaction. A transaction, by the government’s definition, can mean the sale of goods, property and services. A transaction can also be the exchange of cash for other cash, such as a currency exchange. A transaction can take place when property is rented, or when a person makes a contribution to an escrow or trust account. Transactions are also defined as the conversion of cash to a bond or a check. Loan payments and repayments also qualify as transactions. For reporting purposes, the government defines a “person” as an individual, corporation, company, association, partnership, estate or trust. Some organizations may be exempt from completing a Form 8300 if they receive a payment made as a charitable donation.