Form 8300 guidance for legalized-substance businesses

Plain-English summary

Chief Counsel answered examination questions about Form 8300 compliance by
businesses in the legalized-substance industry. The advice covers transaction
descriptions and Fifth Amendment concerns, the fact-specific reasonable-cause
standard, improper defensive use of the suspicious-activity box, required
notification statements, and circumstances supporting intentional-disregard
penalties. It also explains that cash transfers between related entities with
separate EINs can be reportable, prepaid cash deposits trigger the 15-day filing
period when received, and cash-courier drivers generally must be identified and
notified. Related cash payments may need to be aggregated, including later
payments received within 15 days of the first reportable payment.

Ruling snapshot

• Question: How should examiners apply Form 8300 filing, notification, identification, and penalty rules to legalized-substance businesses?
• Outcome: Advice given
• Key authorities: IRC §§ 6050I, 6721, 6722, 6723, and 6724; Treas. Reg. § 301.6724-1

Full text (IRS public release)

Office of Chief Counsel
Internal Revenue Service
memorandum
Number: 202409016
Release Date: 3/1/2024
CC:SB
PRESP-104503-23

UILC: 6050I.01-00

date: January 22, 2024

to:   Brittany L. Lippold, Group Manager

BSA Examination West

from: Charles A. Hall, Special Counsel
Small Business/Self-Employed Division Counsel

subject: BSA Legalized Substance Industry - Frequently Asked Questions

This Chief Counsel Advice responds to your request for assistance. This advice may
not be used or cited as precedent.

You have asked a series of question related to the filing of Form 8300 that have arisen
in examinations of trades or businesses involved in the legalized substance industry.
The memorandum provides guidance on many of these issues in a question-and-
answer format. We are working on additional guidance on questions related to cash
couriers/armored cars who transport cash between growers/manufacturers and
dispensaries/sellers.

Question 1: On Part 3, Line Item #33 which type of transaction should a legalized
substance business be selecting?

Answer 1: Ideally, the business should be selecting Box J “Other” for Line Item #33 and
then providing a specific description in Line Item #34 like “marijuana flower invoice

XYZ” or “marijuana edibles invoice XYZ”. However, due to the 5 th Amendment these

businesses cannot be forced to specifically state “marijuana” on Line 34. If the business
does not want to mention “marijuana” then suggest that they go with NAICS code 11-
“Agriculture, Forestry, Fishing and Hunting” or they could use a subcategory code that
might be more fitting, such as 424590 – “Other Farm Product Raw Material Merchant
Wholesalers.”

Businesses have been checking Box G for exchange of cash and some check other
boxes, which is incorrect. Line Items #33 & #34 are considered critical fields and require
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mandatory penalty assertion for incorrect filing. Examiners must educate the business
on the appropriate selection for future filings.

Question 2: What is reasonable cause and what would allow it?

Answer 2: Under section 6724(a), no penalty for a failure under sections 6721 and
6722 shall be imposed “if it is shown that such failure is due to reasonable cause and
not willful neglect.” It is the taxpayer’s burden to establish reasonable cause. As many
of these businesses are represented by a Power of Attorney (POA), the majority will ask
if they qualify for reasonable cause waiver. Determining reasonable cause starts with
the initial interview, where the examiner should complete a detailed interview to gain a
full understanding of the facts and circumstances for each case, including knowledge
and intent. Starting the reasonable cause determination at the end of an exam is not
recommended. There is an excellent discussion of reasonable cause for the information
return penalties in IRM 20.1.7.12.1 (12-16-2022). The discussion below borrows
liberally from the IRM.

o Reasonable cause for the information return penalties generally exists when:
• The filer acted in a responsible manner, both before and after the failure
occurred, and
• (i) There are significant mitigating factors, or (ii) The failure was the result of
circumstances beyond the filer’s control.

o Acting in a Responsible Manner (26 CFR 301.6724-1(d)) generally includes
exercising the same degree of care that a reasonably prudent person (or
organization) would use in the course of its business in determining filing obligations
and in handling account information such as account numbers and balances. The
filer must act in a responsible manner both before and after the failure occurs. Acting
in a responsible manner also includes taking steps to avoid the failure, for example:
• Requesting appropriate extensions of time to file when practical to avoid the
failure,
• Attempting to prevent a failure if it was foreseeable,
• Acting to remove an impediment or the cause of the failure, and
• Correcting the failure as promptly as possible, generally within 30 days.

o Sometimes the reasonable cause question is framed as “Can we get out of these
penalties because we didn’t know about the requirements”? A waiver should not be
automatically granted where the filer claims ignorance of the filing requirements.
However, ignorance of the law may be considered as one factor which may indicate
that the filer acted in a responsible manner if all the other facts support this
contention.

o Significant mitigating factors - For the filer to establish reasonable cause under this
category, the filer must show that they acted in a responsible manner as well as the
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existence of a significant mitigating factor. Events generally considered to be
significant mitigating factors include, but are not limited to:
• First time filer - prior to the failure, the filer had not previously been required to
file this particular form or statement.
• The filer has a history of complying with the information return reporting
requirements. The filer’s history of compliance should be considered whether
or not the filer specifically requests abatement on this basis.
• Significant consideration is given to if the filer was previously penalized under
section 6721, section 6722, or section 6723.

o Events beyond the filer’s control - For the filer to establish reasonable cause under
this category, the filer must show that it acted in a responsible manner, as well as
the event was beyond the filer’s control. Events generally considered beyond the
control of the filer include (but are not limited to): Actions by the IRS, Actions of an
agent, Actions by the payee or any other person, and Unavailability of business
records. See IRM 20.1.7.12.1 for further discussion of the events that might qualify
for reasonable cause.

o Where a penalty is imposed for missing or incorrect TINs, a filer must comply with
special rules for acting in a responsible manner. In general, a filer will have acted in
a responsible manner if the filer:
• Exercised reasonable care to determine his/her filing obligations and handle
the account numbers and balances,
• Took significant steps to avoid a failure, such as requesting an extension of
time to file, attempting to prevent a foreseeable failure, and acting to remove
the cause of a failure once it had occurred, and
• Corrected the failure promptly once the cause of the failure had been
removed.

o Correction of a failure is ordinarily considered prompt if made:
• Within 30 days after the cause of the failure is removed,
• Within 30 days after the failure is discovered, or
• By the earliest date after the cause of the failure is removed or the failure is
discovered on which a regular submission for corrections is made (a
submission is considered “regular” only if made at intervals of 30 days or
less).

See IRM 20.1.7.12.2; IRM 4.26.10.10.3.1 (07-13-2012); and IRM 4.26.11.9.11 (08-04-
2021).

o IRM 20.1.7.12.1 lays out the process in detail on how to navigate reasonable cause
with the business, what they need to do to prepare a reasonable cause justification,
and how the IRS will process it. The Group Manager needs to be involved and
ideally the Exam team should make sure the business understands they do not
qualify for reasonable cause just because they didn’t know the rules. Let them know
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that penalties will be assessed and then they can follow the procedures provided in
the letters L4595 or L4596 if they disagree.

Question 3: Is it reasonable for a legalized substance business to check the
suspicious activity box simply because of the type of product they deal with?

Answer 3: No. When marking the suspicious activity box is purely done defensively,
much like a Money Service Business filing defensive Significant Activity Reports, this is
an abuse of the use of that box. If they are solely marking the box because of the
industry and for no other reason, this is not an appropriate use of the box. If a business
is checking the box in these circumstances, the agent should inform them that
continuing to check the box could result in penalties for inaccurate forms. Of course,
this depends on the facts and circumstances in each case.

Question 4: What is the impact on notification statements when the suspicious
activity box is checked?

Answer 4: Under section 6050I(e), a trade or business required to file a return under
section 6050I “shall furnish to each person whose name is required to be set forth in
such return a written statement.” Regardless of whether the suspicious box is checked,
the business is not relieved of the requirement to provide a notification statement
(neither the statute nor the regulations allow for not providing a notification statement
just because the box is marked).
• However, notification statements should not disclose to the payer of the cash that
the form was marked suspicious. If the payer only has one reportable transaction
and the business normally provides a copy of the filed form to meet the
notification requirement, then the business will need to provide the statement by
sending a letter with the required information instead of providing a copy of the
actual form that was filed.
• If the payer had multiple reportable transactions, then providing a copy of the
filed form itself does not meet the requirement for notification as the statement
must be a single document.
• If the business genuinely fears for their safety if they were to send a notification
statement, they need to prepare a written statement as to why the notification
wasn’t provided and keep it with their records. Even if this is done, the examiner
must still consider the facts and circumstances as to whether there is a real fear,
and whether to assert a penalty for failure to provide the notification statement if
the examiner determines the fear was not real.

Question 5: Does prior correspondence from the BSA Support team (CTR Ops)
regarding violations in earlier periods establish the business’ knowledge and
therefore, give BSA Exam the ability to assert intentional disregard? Also, if a
business continues to do business with a customer who refused to provide
EIN/TIN, is this considered intentional disregard of Form 8300 filing procedures?
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Answer 5: Under sections 6721(e) and 6722(e), higher penalties may be imposed if the
failure under those sections was due to intentional disregard of the filing and furnishing
requirements. In both situations in the question the Exam team needs discuss with the
business and educate them on the filing requirements and inform them that continued
failure to obtain required information, especially after being informed that the information
must be included, can result in being assessed intentional disregard penalties. For the
first part of the question, it is important to determine what actions the business took after
receiving the correspondence from CTR Ops. Sometimes businesses just ignore the
correspondence and do not take any corrective action, which can support a
determination of intentional disregard in a subsequent period. The important piece here
is for the Exam team to work with the business and inform them as to what the law
requires and inform them of the potential of intentional disregard/willful penalties. If the
business chooses to ignore the guidance provided by the Exam team and continues to
operate in the same manner, then it falls on them and they will be faced with the
consequences of ignoring the law. Make sure to request a follow-up exam for next
scope year.

Suggested work around for business so they don’t have to cease business
altogether: The business may come back and say that the customer refuses to provide
their EIN/TIN information. The Exam team can suggest that the business inform their
customer that the law requires the EIN/TIN information when transacting in cash and if
the customer doesn’t want to provide the EIN/TIN information that the customer can still
conduct the transaction by paying in another form rather than using cash. If the
customer insists that they will use cash and not provide the information, then the
business must decide whether to continue to do business with that customer. Going
forward, since the Exam team formally informed the business of the requirements and
risks, if the business continued to do business in the same manner, then the Exam team
could assert intentional disregard penalties.

Question 6: Can a revenue agent put a marijuana business on an “inadequate
records” notice because of a Form 8300 examination? See IRM 4.10.8.16

Answer 6: Currently, inadequate records notices do not apply to Form 8300 Exams.
However, it is something that is being explored. If there is a particularly egregious
scenario, then the examiner should speak with his or her manager, and they should
coordinate with BSA Policy and/or Counsel and an inadequate records notice could
potentially be used. But for now, it is not a normal tool in the examiner’s toolbox.

Question 7: When cash payments are made between related entities in the
marijuana industry is there a Form 8300 filing requirement?

Answer 7: While entities can be related by being in the same ownership group, or one
entity being a subsidiary of the other (parent), the controlling factor as to whether a
Form 8300 must be filed is whether the entities have different and separate Employer
Identification Numbers (EINs). If a grower/manufacturer receives over $10,000 in cash
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from a related dispensary/seller in the course of doing business, the determining factor
as to whether it is a reportable transaction for which a Form 8300 is required is whether
the two businesses have different EINs. For example, if one entity owns both
businesses and both businesses use the same EIN, the transaction would not require a
Form 8300 filing as the transaction would just be considered a transfer of funds
between the different locations of the same entity. If instead, each business has a
separate EIN then there would be a Form 8300 filing requirement because having a
separate EIN is sufficient for there to be separate legal entities for purposes of the Form
8300. This is true even if both businesses are located in the same building and work
together. In this situation the Form 8300 filing requirement can be satisfied by the
grower filing the Form 8300, or the common parent/headquarters filing the Form 8300.

Sample Scenarios Related to Above Question:
Scenario 1: Company A is marijuana manufacturer. Company A established a
subsidiary, company B, as a distributor in charge of cannabis sales. Company A and
company B are separate legal entities (different EINs). Company B gives cash to
company A for the purchase of products to sell. Is a Form 8300 required?

Scenario 1 Answer: As the cash was received in the course of business and the
entities are separate legal entities (have different EINs) then a Form 8300 is required to
be filed by company A for the receipt of the cash from company B when it’s over
$10,000.

Scenario 2: Company A is a marijuana manufacturer. Company A established a
subsidiary, company B, as a distributor in charge of the cannabis sales. Company A and
company B are separate legal entities (different EINs). Company B collected cash over
$10,000 from sales and put it in a safe that company A shares as they’re both located in
the same building. A transfer of cash over $10,000 was made on the books from
company B to company A and company A used the cash to pay vendors. There was
never a physical transfer of cash between the two since they share the safe. Is a Form
8300 required?

Scenario 2 Answer: Yes. Company A received cash over $10,000 from company B,
even though it was in the same safe, the legal ownership of the cash changed and
that’s what triggers the reporting obligation.

Scenario 3: Holding Company A establishes two different subsidiaries, Company B, a
grower and Company C, a seller. Both Company B and Company C have different
EINs. Company B receives cash in excess of $10,000 from Company C. Company B
does not file a Form 8300 but Holding Company A as parent to Company B files the
Form 8300 for this transaction. Is there a violation that would give rise to penalty for
failure to file a correct information return?
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Scenario 3 Answer: No, there not a violation. In this situation either Company B or
Holding Company A could discharge the duty to file a Form 8300 for this cash
transaction.

Question 8: If cash over $10,000 is given for a pre-paid deposit, is the recipient of
the cash required to file Form 8300?

Answer 8: Yes. The 15-day time frame in which the Form 8300 must be filed starts the
day the cash is received, regardless of when the invoice is prepared, or the product is
given to the customer. Cash that is transferred before the rest of the transaction is
essentially considered a deposit for a sale as the parties know or have reason to know
that a transaction will occur because of the receipt of this cash. If the recipient of the
cash must return some of the cash to the customer because the customer didn’t use all
of it, that doesn’t change that business still had the obligation to file the Form 8300
when it received the cash.

Example: Dispensary A gives Grower X $100,000 in cash on 9/1 to use as credit for
future purchases – no invoices or receipts are prepared or presented. The cash is
placed into Grower X’s safe and logged in Grower X’s system as a deposit. Dispensary
A purchases $30,000 in product on 10/15 and Grower X prepares the sales invoice and
transfers the funds from the safe to their bank. Grower X is required to file a Form 8300
on or before 9/16 for $100,000 as the cash was received on 9/1. If $70,000 in cash is
returned to Dispensary A, then it is possible that Dispensary A has a filing requirement
for this transaction. This type of situation could result in TWO filing requirements.

Question 9: As part of completing the Form 8300, must the filer always include
the TIN of anyone involved with the movement of the cash including 3 rd parties,
employees, cash courier services, including the drivers working for the cash
courier service?

Answer 9: Yes. There is currently no exception to keep driver information from being
reported. The driver is involved in the cash transaction and the Form 8300 requires the
SSN of all persons involved. Using the EIN of cash courier service for the driver is not
allowed.

Question 10: Does the filer of the Form 8300 need to notify all parties in Part 1
and Part 2 of the Form 8300 including a cash courier service and an
employee/driver of the cash courier?

Answer 10: Yes. All persons and businesses reported in Part 1 and Part 2 must receive
a notification statement, including if there are multiple Part 2s.

Question 11: Can an employee/driver of a cash courier service provide the
recipient of the cash/filer an unexpired marijuana license or card issued by a
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state government for the identification document (ID) and number required on
line 14 of the Form 8300?

Answer 11: It depends. The filer must verify the name and address of every individual
reported on the Form 8300. Verification must be made by examination of a document
normally accepted as a means of identification when cashing checks (for example, a
driver’s license, passport, alien registration card, or other official document). A
government issued marijuana license or card may be an acceptable form of ID for the
Form 8300 if it has a photo, the employee’s name, and an unexpired expiration date.
However, some of these licenses or cards may not include an address. In that situation
the filer must take additional steps to verify the individual’s address. Please see
question 12 below for a discussion about verified addresses.

Question 12: What must a filer do to verify the information of persons or
businesses reported in Parts 1 and 2 of the Form 8300?

Answer 12: The filer of the Form 8300 is required to verify the name and the address of
every person reported in Parts 1 and 2 of the form. A driver’s license is typically the best
form of identification as that has a name, address, identification number, and an
expiration date. Some other forms of identification may not have an address on them. In
that situation, a filer could verify the address with another form of identification, or a
utility or other type of bill or account statement, with the individual’s name and address.
Businesses should have procedures in place to verify names and addresses when an
identification document does not have an address.

Question 13: Can an employee/driver of a cash courier service provide the filer of
the Form 8300 with the cash courier service’s business address as their address
for purposes of the Form 8300 filing or must the employee’s address reported on
Form 8300 be a residential address?

Answer 13: There is nothing in the law that specifically requires a residential address
be provided instead of a business address. However, as turnover of drivers might be
high, there could be an issue with providing the notification statement to a driver if the
driver uses the business’ address and the driver ends employment with the cash courier
service. Thus, a residential address is preferable.

Question 14: If there are multiple drivers for the same cash courier service over
the course of the year how does the filer of the Form 8300 handle the notification
statements?

Answer 14: The filer of the Form 8300 provides the cash courier service with one
notification statement for the total of all Forms 8300 on which the cash courier service
was listed throughout the entire year. The filer of the Form 8300 provides the individual
drivers with one notification statement for the total of all Forms 8300 on which the
individual driver was included throughout the entire year.
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Question 15: A dispensary has three invoices from a grower for purchases of
product. Invoice 1 is for $15,000, invoice 2 is for $9,000, and invoice 3 is for
$18,000. On 10/1/23 the dispensary provides cash of $19,000 to the grower,
broken down as follows: $15,000 of it is to pay off invoice 1, $3,000 is to pay
towards invoice 2, and $1,000 is to pay towards invoice 3. The dispensary
provides the grower with a second payment of $23,000 on 10/11/22. This pays off
invoices 2 and 3. When does the grower have to file the Form 8300 and how much
cash must be reported on it?

Answer 15: The grower must file the Form 8300 within 15 days of 10/1/22 and must
report cash received in the amount of $42,000. If the grower filed the Form 8300 prior to
the cash payments made on10/11/22, then the grower would need to file an amended
Form 8300 to report the full amount of $42,000 as these invoices are considered related
transactions since multiple payments were made at the same time on each of them. The
subsequent payment was made within 15 days of the first payment. If an Exam team
discovers that this had occurred, it may want to suggest to the grower that if they allow
partial payments and/or payments in terms that they do not file Form 8300s until the
15th day after a reportable payment if invoices involved still have remaining balances
due. Electronic filing will help ensure a timely filing if the business is waiting the 15 days
for additional payments.

Question 16: Same scenario as above however, the 2 nd payment of $23,000 is
received on 10/17/22. This pays off invoices 2 and 3. When does the grower have
to file Form 8300 and how much cash must be reported on it?

Answer 16: The grower must file the Form 8300 within 15 days of 10/1/22 and must
report cash received in the amount of $19,000. The grower would need to file a second
Form 8300 within 15 days from 10/17/22, reporting cash received in the amount of
$23,000.

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Please call (240) 613-6347 if you have any further questions.