One of the most powerful data collectors in the United States is an agency named the Internal Revenue Service (or as often referred to as the “IRS”). As an agency under the U.S. Treasury, the IRS has tremendous power to collect data and assets of the citizens and expatriates of our country.
To help combat unreported income, the IRS requires banks, financial institutions and other organizations, to report cash transactions of more than $10,000 to the agency. This report is titled a “Currency Transaction Report” or CTR which is tracked by taxpayer to compare with the person’s tax filing for the year. Many industries continue to utilize currency and coins as a means of transacting business. For example, car washes, vending machine operators, dry cleaners, restaurants, etc. allow their customers to utilize cash as a means of payment.
Recently, the U.S. Secretary of the Treasury, Janet Yellen, proposed the limit on tracking cash transactions be lowered to $600 per transaction. This would be a significant imposition on the financial institutions reporting the activity as well as an intrusion into the privacy of most, if not all, U.S citizens.
Consequently, a CTR may be reported if you had a series of cash transactions with your financial institution in which the total was at least $10,000. For example, let’s assume you deposited $7,500 of a larger sum of moneys, in cash in your checking account on Monday at 10:00 A.M. You retained additional sums of cash for groceries, clothing and other necessities of life. However, later that evening you realize you do not need the full amount of the remaining cash and deposit $2,500 of excess cash in your checking account on Tuesday at 10:00 A.M. This series of cash transactions would be collapsed and reported as a CTR to the IRS due to the total reaching $10,000 within a short period of time.
Another industry that is not a financial institution but is required to report cash transactions is gaming. Let us assume you are the lucky winner of a slot machine payout of $10,000. The casino management is required to collect your personal information and report the winnings to the IRS. This can occur if you are cashing in your tokens, purchasing or redeeming chips, acceptance of wager winnings, etc.
Once you file your annual tax return, the IRS computer system compares the income reported on your return to that referred to the agency by payers (i.e., employers, casinos, banks, investment custodians, etc.). If the income reported on your return is greater than the amounts referred to the IRS, most likely your return will be approved and processed without delay. However, lets assume you inadvertently failed to report a small information return in the amount of $100. The IRS will perform its comparison and send you a letter asking for explanation. Should you be unable to explain the discrepancy with adequate documentation, you will be sent a bill for the computed balance you owe the federal government.
With the storage of tremendous and sensitive personal data, the IRS must safeguard its information collected on the citizens. Privacy is paramount for the IRS. However, this charge of privacy of citizens’ personal data was breached last week. A disgruntled employee of the IRS unlawfully disclosed to the world the income tax returns of Jeff Bezos, Warren Buffett and other uber-wealthy citizens. One of the most sacred filings of a person is their income tax return. This annual filing requires disclosure of some of the most private information, which would equip someone with the tools necessary to steal your identity and ruin your credit.
The best method of protecting your privacy is to review your credit report periodically. Do not provide your Social Security Number, date of birth or other identity information to individuals on the phone. Many scams are carried out on unsuspecting individuals and the scammers win handsomely! The IRS or Social Security Administration will not call you to demand money without sending a letter to you before they call. Do not fall for scams that insist your grandchild is going to be placed in jail if you do not send money for his/her bail to the scammer on the phone. Do not laugh, this happened, and many elderly citizens lost significant monies.
Filing tax returns, and paying the least amount that you lawfully owe, is a responsibility of citizens of the United States. If you have questions about someone seeking your personal information, err on the side of caution. Seek out a CERTIFIED FINANCIAL PLANNER™ and Certified Public Accountant to help guide you through the maze of tax compliance. See you on the golf course!
