In 1970, Congress passed the Bank Secrecy Act in an attempt to uncover and control the money flow of criminal activities. This legislation targeted certain large cash transactions and set up a system to report these activities to legal authorities.
Why Do Banks Report Some Cashier’s Checks to the IRS?
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The Bank Secrecy Act requires that monetary and cash transactions in excess of $10,000 in a single transaction must be reported to the federal government. The idea behind this rule is that many illegal activities, such as money laundering, tax evasion and terrorism, can prompt the transfer of large sums of cash, so the government obviously wants to know about them.
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The USA Patriot Act tightened the reporting requirements somewhat in 2001 to better combat terrorism, then the Taxpayer First Act placed some restrictions on the Internal Revenue Service regarding these transactions in 2019. The bottom line is that there's a small chance that a $5,000 cashier's check could be reported, but it's by no means a certainty.
Which Cashier’s Checks Get Reported to the IRS?
"Cash" isn't just cash deposits, paper money, nickels and dimes for reporting purposes. It includes traveler's checks, personal checks, money orders and, yes, cashier's checks or bank drafts. The IRS says that "cashier's checks" include treasurer's checks and bank checks – basically anything that was funded with cold, hard cash.
The rules are admittedly murky, however. The IRS indicates that wire transfers aren't considered cash, nor are checks that are written on your own personal bank account. And here's where it gets really tricky: A business accepting a $10,001 cashier's check for a purchase doesn't have to file a report because, presumably, the bank or financial institution already did so if the cashier's check was funded with cash. Proceeds that come from a bank loan aren't reportable, either.
The Bank Secrecy Act requires vendors, professionals and businesses – not just banks, credit unions and financial institutions – to file a currency transaction report. The list includes pawnbrokers, attorneys, insurance companies, travel agencies and most retail businesses. The key is that the service or property being purchased is for personal use.
Who Must Report?
The Bank Secrecy Act requires vendors, professionals and businesses – not just banks, credit unions and financial institutions – to file a currency transaction report. The list includes pawnbrokers, attorneys, insurance companies, travel agencies and most retail businesses. The key is that the service or property being purchased is for personal use.
IRS Form 8300 is due to the IRS within 15 days of the transaction. Individuals who sell personal property but who aren't engaged in the business of doing so don't have to report. Banks have a different reporting form for their transactions – Financial Crimes Enforcement Network Report 112 – although it serves the same purpose.
There’s a $10,000 Dollar Limit
Technically, there's a $10,000 cashier's check limit, so $5,000 wouldn't ordinarily wave a red flag. Banks – or virtually any other business that's collecting this much in cash – must report cash transactions by filing Form 8300 with the IRS, a "Report of Cash Payments Over $10,000 Received in a Trade or Business," when they receive more than $10,000 in cash from any customer or client.
Further complicating the issue is the fact that the $10,000 threshold isn't carved in granite. The amount can be less – even $5,000 – if a vendor, business or bank "knows" that an individual who is buying a cashier's check or paying with cash is trying to avoid the appearance of suspicious activity.
It might prompt suspicion if you purchase two or more cashier's checks or make two or more bank deposits within 24 hours and the total meets the more-than-$10,000 limit, even though both transactions were less than $10,000. This timeframe can extend to a year if the two separate payments are related transactions. This practice is sometimes referred to as "structuring" purchases or deposits.
A vendor, bank or business can reach out by phone to their local IRS Criminal Investigation Division or the FinCEN Financial Institution Hotline if they're suspicious of a transaction and not sure what to do.