To the average person, it would seem like making deposits into their savings or checking accounts would be viewed as a good thing. After all, doesn’t a regular savings plan mean an individual handles their money responsibly and they have a good plan in place to save for their future?
In most cases, this is precisely what is occurring. Millions of people make regular deposits into their savings or checking accounts in order to pay bills, build up their savings for a down payment on a home, prepare for their retirement, or simply save for a rainy day.
However, both law enforcement and the IRS have discovered that in some instances individuals who make multiple deposits, especially large deposits, are actually involved in some kind of illegal activity, including money laundering, illegal drug activity, tax evasion and perhaps even terrorism.
Bank Secrecy Act & The Patriot Act
The Bank Secrecy Act, also known as the Currency and Foreign Transactions Reporting Act) was passed decades ago by Congress in 1970. Designed to pinpoint those who were attempting to evade taxes and/or were involved in money laundering, the Bank Secrecy Act was strengthened by Title III of the Patriot Act. The Patriot Act passed in 2002, shortly after the 9/11 terrorist attacks.
Title III: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, part of the Patriot Act, requires banks and credit unions to report certain deposits to the IRS within 15 days by filling out a Form 8300. A copy of this form is sent to the Financial Crimes Enforcement Network (FinCEN).
Which Deposits are Reported?
When do banks report deposits to IRS? Banks and credit unions are required to report a cash deposit of $10,000 or larger.
In addition, if two transactions within a 12-month period seem related and their total exceeds $10,000 they must be reported. If a series of smaller deposits is made within a 24-hour period and their combined total exceeds $10,000, the IRS considers the transactions related to each other and they are reported as well.
Even if deposits are not made within 24 hours, if a bank or credit union has legitimate reason to suspect an individual is making regular deposits in order to avoid being reported, they are required to report their suspicions.
Cash deposits as defined by the IRS includes all currency and coins that are legal tender in the United States, in addition to the legal tender of all other countries as well. Deposits of personal checks do not fall under the Bank Secrecy Act because these types of checks can always be traced back to the account of the individual who wrote the check. Only bank drafts, money orders and certain types of checks such as a traveler’s or cashier’s check, are affected by the rules of the Bank Secrecy Act.
IRS Form 8300
What kind of information do banks and credit unions pass on to the IRS when they fill out a Form 8300?
The bank or credit union filling out the form will list their own business information and they will provide personal information, such as the name and taxpayer identification number of the depositor. If deposits were made to a joint account and there were multiple depositors, the banking institution will identify each depositor. They will also list the amount(s) that triggered the Form 8300, along with the format of the deposit(s) — whether they were made by bank drafts, money orders, a traveler’s or cashier’s check, or a combination of these formats.
The bank or credit union will then send the form to the IRS for review. If a bank or credit union fails to file a Form 8300 on time the IRS will impose a penalty on them. Therefore, financial institutions are motivated to file the forms within the deadline.
Most individuals do not regularly receive money orders, bank drafts, etc. that exceed the $10,000 threshold. The only individuals who might have cause for concern are those running some type of small business. If you foresee a time when you might be receiving enough funds to exceed $10,000 in deposits, talk with your bank, credit union or your accountant to determine the best way to adhere to the rules outlined by the Bank Secrecy Act and the Patriot Act.
In December last year and in February this year, I had made at least 4 deposits within a week that totaled over $10k for each month in my bank. Will this raise any red flags?