April 24, 2015

It is important for small businesses to understand that the federal government is cracking down on business owners who try to evade reporting requirements.

At one time, it was possible for small business owners to increase their income by operating small, cash-only enterprises. They skirted the IRS reporting requirement for large bank deposits by making frequent deposits of less than $10,000 each.  No longer.

The tactic is called structuring and it is strictly illegal, and the the government has a powerful new weapon to prevent it. The law now allows the government to seize bank accounts merely on suspicion of wrongdoing — and frequent, small deposits arouse scrutiny. Family-owned businesses and even individuals saving for their children’s college education can be targeted.

An October 2014 article in The New York Times includes several points concerning the new law that all citizens — not just business owners — should be aware of:

  • Making small bank deposits, even frequently, is perfectly legal.  It is the attempt to skirt tax reporting requirements that is against the law. However, it is up to the individual to prove that he or she has done nothing wrong.
  • A bank statement is all that is needed for banks to file suspicious activity reports. Last year banks filed more than 700,000 such reports.
  • Fighting bank account seizure in the courts can require individuals to accrue legal costs of $20,000 or more. Many middle class individuals simply cannot afford that sum — and simply give up, even when they are totally innocent.

It is still important to use bank accounts to obtain FDIC protection. However, to avoid being caught by an accusation of structuring, middle income earners should adhere strictly to the law:

  • Always make deposits of at least $10,000 so that the bank will have to file the necessary reporting paperwork with the IRS.
  • Collect smaller amounts of money in a safety deposit box until you have accumulated enough cash to make a deposit that will trigger the reporting requirement
  • By adhering to the law, you may be saving your business or your financial future.

The IRS recently reported that it is scaling back on future seizures, focusing on cases where there seems to be a clear indication of illegal structuring rather than on ordinary individuals. Nonetheless, it’s better to play it safe. Avoiding even the appearance of structuring is well worth the increased taxes you pay on large bank deposits.