Currency Transaction Reports and Exemptions to When One Has to be Filed
Updated: Jul 9, 2020
This post should not be construed as legal advice.
Today’s post delves into a question some of you or producers you work with have faced: depositing amounts under $10,000 to avoid the bank filing a “Currency Transaction Report” (CTR). Certain agricultural operations will periodically deal in cash volumes that big but as we will discuss, attempting to avoid a CTR being filed can result in penalties and possible jail time, even if no underlying crime was committed. The law does allow for exemptions to these filing requirements and if you find yourself in this situation, you should talk with your banker to determine if you qualify for an exemption.
Before we look at the exemptions to filing a CTR, let’s look at when a CTR filing is required. Federal law currently requires all financial institutions to file a CTR with the Internal Revenue Service (IRS) for all transactions greater than $10,000 (31 U.S.C. § 5313 (a)). But what if you go to the bank this morning and deposit $5,000, then go to a different branch and deposit $6,000 later that day? This would be considered one transaction totaling $11,000 because federal regulations clarify that multiple transactions in one business day are treated as a single transaction (31 C.F.R. § 1010.313). Now consider you broke the transaction up over two days or over a span of days. This potentially would be considered “structuring” because you attempted to cause the bank to avoid filing a CTR (31 C.F.R. § 1010.314). Transactions such as these can lead to a bank filing a “Suspicious Activity Report” (SAR) (31 C.F.R. § 1020.320(a)(2)(ii)). A bank is required to file a SAR when it believes the transaction is being conducted in a way to avoid federal reporting requirements (i.e., filing a CTR).
The statute does allow for the Secretary of the Treasury to develop exemptions for a “qualified business customer” (31 U.S.C. § 5313(e)(2)). A qualified business customer would not be required to file a CTR on deposits over $10,000, but the bank would still be required to file a SAR when it believes a transaction is suspicious. The Financial Crimes Enforcement Network (FinCEN) has developed guidelines for when a business can be considered a qualified business customer. FinCEN has developed 6 exemptions to the reporting requirement, but we are only going to focus on the “non-listed business” exemption.
To qualify as a non-listed business, a business would need to meet the following requirements:
1. Have 5 or more transactions over $10,000 in a year;
2. Have had the account opened for at least 2 months (or if opened for a shorter period, the bank must do a risk assessment on the customer);
3. File a designation of exempt person report with FinCen; and
4. Undergo an annual review conducted by the bank to determine if customer still meets qualifications for exemption.
A non-listed business would also need to have no more than 50% of gross revenues coming from ineligible activities. Ineligible activities include:
“financial institutions or agents of financial institutions of any type; purchase or sale to customers of motor vehicles of any kind, vessels, aircraft, farm equipment or mobile homes; the practice of law, accountancy, or medicine; auctioning of goods; chartering or operation of ships, buses, or aircraft; gaming of any kind (other than licensed parimutuel betting at race tracks); investment advisory services or investment banking services; real estate brokerage; pawn brokerage; title insurance and real estate closing; trade union activities; and any other activities that may be specified by FinCEN” (31 C.F.R. § 1020.315(e)(8)).
Any farm participating in these businesses listed above would want to make sure that less than 50% of their gross revenue comes from those ineligible activities.
Before a farmer talks with their bank about becoming a non-listed business, the farmer should speak with an accountant and possibly an attorney to determine if utilizing the exemption is in the farm’s best interest. After this discussion, a farmer would be ready to talk with their bank about filing the paperwork with FinCEN to become exempt from CTR reporting requirements as a non-listed business.