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What are the tax implications of walking into a bank and trying to deposit, oh, say 40k in cash that your recently passed away grandfather stashed under the floor?
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None if you shouldn't have had to pay estate tax on it or had any reason that it maybe shouldn't be yours. If it's legitimately yours and your grandfather's assets were well below the estate tax limits, I can't think of any.
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What are the tax implications of walking into a bank and trying to deposit, oh, say 40k in cash that your recently passed away grandfather stashed under the floor?

The tax implications are no different than if the cash was kept in a bank.

However, the bank is required to report transactions (or a series of related transactions) involving more than $10k of currency. So I would be prepared to document the source of the funds. The best thing I can think of at the moment is written and signed statements from a couple of witnesses who also saw the cash stashed under the floor.

--Peter
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What are the tax implications of walking into a bank and trying to deposit, oh, say 40k in cash that your recently passed away grandfather stashed under the floor?
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In theory, none. But that assumes you can prove the source of the money, and that it was an inheritance.

The bank will require the completion of a CTR (Cash transaction report, form 8300), for a cash transaction over $10,000.

This may get you some attention from the IRS when your tax return doesn't reflect the $40,000, as it shouldn't, if the situation is as you describe it.

While it may not actually be income, they may be inclined to assume it is, especially if you have no evidence to the contrary.

Questions may also arise, such as:

If the money belonged to your late grandfather, how come you are depositing it, instead of, say, your mother or father, as the case may be?
How is it really yours, vs. other relatives?
Are you the executor/administrator/personal representative of his estate?

You may have issues beyond the tax implications.

Bill

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ptheland:

<<<<What are the tax implications of walking into a bank and trying to deposit, oh, say 40k in cash that your recently passed away grandfather stashed under the floor?>>>>

"The tax implications are no different than if the cash was kept in a bank."

Peter, I rarely question you but are you sure?

No chance IRS would think that the 40k represented income that grandfather had not declared and on which grandfather had not paid income tax? Can the IRS re-open grandfather's past returns? IIRC, failure to declare income does not carry a statute of limitations?

Curiously, JAFO


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Me:
"The tax implications are no different than if the cash was kept in a bank."

The ever-curious JAFO:
Peter, I rarely question you but are you sure?

No chance IRS would think that the 40k represented income that grandfather had not declared and on which grandfather had not paid income tax? Can the IRS re-open grandfather's past returns? IIRC, failure to declare income does not carry a statute of limitations?


My intent was to say exactly what I said. But I must admit that I didn't elaborate on the thought.

If the grandfather failed to report the income, it would not matter if it were kept in cash or in the bank or in shares of stock. The failure to report would carry the same penalties. If the money came from legitimate sources it would again make no difference how the money was held. If the money is subject to estate taxes (or inheritance taxes for the states that still have those) the taxes are still the same.

Of course, the IRS might think the $40k represented unreported income. But just because that is what they think doesn't make it so. If it is indeed unreported income, there certainly could be some problems down the road. As I mentioned somewhere along the way, it would be important to document to the extent possible the source of the cash, both for inheritance issues and for the deceased's income taxation issues. The cash transaction of depositing the money carries a higher risk of drawing IRS attention than a check deposit of the same amount.

--Peter
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ptheland:

Peter: {{{{"The tax implications are no different than if the cash was kept in a bank."}}}}

The ever-curious JAFO: <<<<Peter, I rarely question you but are you sure?

No chance IRS would think that the 40k represented income that grandfather had not declared and on which grandfather had not paid income tax? Can the IRS re-open grandfather's past returns? IIRC, failure to declare income does not carry a statute of limitations?>>>>

"My intent was to say exactly what I said. But I must admit that I didn't elaborate on the thought.

If the grandfather failed to report the income, it would not matter if it were kept in cash or in the bank or in shares of stock. The failure to report would carry the same penalties."


But is not unexplained large sums of cash generally considered a potential tip-off for unreported income.

No matter how many affidavits OP has from witnesses who also saw the cash stashed under the floor, that really does not answer the question of whether grandfather properly declared his income.

Any chance that the IRS would consider a "lifestyle" audit (not sure if my terminology is correct, but I suspect (and hope) that you understand me) WRT to grandfather? Maybe 40k is under the threshhold, but I suspect that there is some number that would interest them - 400k, or 4M, etc.

Regards, JAFO
(and thanks for your patience)



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But is not unexplained large sums of cash generally considered a potential tip-off for unreported income.

Yes, it is. Unless the IRS has lost all ability to think reasonably since Phil left. ;-)

No matter how many affidavits OP has from witnesses who also saw the cash stashed under the floor, that really does not answer the question of whether grandfather properly declared his income.

I was thinking of the person actually doing the depositing when suggesting that. How did THEY get their hands on that much currency? Discovering the cash hoard when settling their grandfather's affairs is a potentially reasonable explanation. And since they will be the ones making the deposit of cash, they are the one that will likely be reported on the cash transaction report. I've never actually seen one, but I suspect they will need to identify themself rather than their deceased grandfather.

There are actually two people with potential problems stemming from this cash hoard - the grandfather and whomever actually takes the cash to the bank. The person taking the cash to the bank would be the first one with an issue. Once that is resolved to the IRS's satisfaction as coming from an estate, the question moves to the grandfather. How did HE come into the cash hoard? That will, by far, be the more difficult issue to deal with. Especially since the grandfather is not available to answer questions.

Any chance that the IRS would consider a "lifestyle" audit (not sure if my terminology is correct, but I suspect (and hope) that you understand me) WRT to grandfather? Maybe 40k is under the threshhold, but I suspect that there is some number that would interest them - 400k, or 4M, etc.

Absolutely. It would be prudent for the executor/administrator of the estate to keep some funds in the estate to protect against this possibility. There is also a process to request a prompt assessment of taxes due. While it would not preclude an audit, it should trigger one if one is coming. But it would allow the executor to finalize the estate as far as the IRS is concerned.

(and thanks for your patience)

That was my attempt at poking some fun at your habit of signing off with "curiously". Patience with people willing to learn is one of my long suits.

--Peter
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[jumping in at the end of the discussion of a 40K cash trigger to a "lifestyle" audit...]

I would be willing to bet that if the IRS initiated a lifestyle audit of the dead grandfather all the executor would have to do would be to say that the grandfather had a distrust of banks and saved up the $40K over a lifetime of earnings and that would be the end of it. (and the end of a long runon sentence. <g>)

Ira
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Would eight of $5K deposits spaced over a couple of months avoid all unnecessary attention? Could even be done at an ATM.
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Would eight of $5K deposits spaced over a couple of months avoid all unnecessary attention?

If done to avoid the attention, it would be illegal.

Doing illegal things to avoid inconvenient legal things is rarely a win.

- Megan
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Would eight of $5K deposits spaced over a couple of months avoid all unnecessary attention? Could even be done at an ATM.

I was wondering when this would come up, which is why I've stayed out of the discussion. The motivator for currency transaction reporting is money laundering, not tax enforcement. This series of transactions would be much more likely to trigger investigative interest than a one-time $40,000 cash deposit. (It's also illegal if done with the intent to avoid transaction reporting, and the banks are required to report these patterns.) It's easy to explain that you inherited $40,000 cash, but not easy to explain why you're trying to slip under the radar. From a tax standpoint, this approach coupled with a cash-based business, e.g. a laundromat, would just about guarantee an excruciating audit. In general, law enforcement people's instincts say, "If you're not up to something, why are you trying to hide what you're doing?" I found extreme inbred curiosity to be my greatest asset when working in tax enforcement.

As for the Grandpa's affairs angle, if he was running drugs and amassed only $40,000, he wasn't very good at it. IRS could, of course, try for an unreported income "cost of living" reconstruction, but I would find the "old crank who didn't trust banks" perfectly reasonable for anyone who lived through the bank holiday.

Phil
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I am assuming the money is entirely legal and there's nothing shady or suspicious about it, much less being a case of laundering. I am thinking in terms of helping a regular, law-abiding citizen avoid headaches. Didn't know the series of transactions was itself illegal even if the money was legal income/inheritance.
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I am assuming the money is entirely legal and there's nothing shady or suspicious about it, much less being a case of laundering. I am thinking in terms of helping a regular, law-abiding citizen avoid headaches. Didn't know the series of transactions was itself illegal even if the money was legal income/inheritance.

That's the problem. When it comes to things that are regulated by the government, there is no such thing as avoiding headaches. You have a choice between headaches and migraines. If you try to avoid the headaches, you usually end up with a migraine.

Ira
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I am thinking in terms of helping a regular, law-abiding citizen avoid headaches.

Then tell him to deposit the money, bless the memory of his grandfather, and get on with life, which, I'm sure his grandfather could attest if he could speak, is too short.

Phil
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There is a reporting requirement for $10,000 or more deposited in cash (and it is illegal to structure deposits with the intent of avoiding the reporting requirement), there is also a reporting requirement for any cash transaction of $10,000 or more, so you can't expect to walk into a car dealer and buy a $40,000 car to avoid the reporting requirements.

I may be naive (make that, "I am naive"), but my inclination would be to go to the branch manager, state right out that you have a substantial cash deposit to make, you are aware that there is a reporting requirement, and show the branch manager any documentation you might have to support that it is from your grandfather's estate. If you have a letter of transmittal from the executor of the estate, photographs of where the cash was found, or even a declaration of the cash when the estate taxes were filed, it would make your statements more credible. Also, if the bills have dates spanning several decades, it would help support the "bank distrusting, cash hording" nature of your grandfather as why there is so much cash.

If all the bills were less than five years old, you may have a mystery on your hands, and then you may have to find where the cash came from (e.g., any bank records showing a $40,000 cash withdrawal or a structured withdrawal program that totals near the $40,000).
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but my inclination would be to go to the branch manager, state right out that you have a substantial cash deposit to make,

The branch manager probably doesn't give one whit for all the documentation. They aren't the ones to whom you need to substantiate the source of the cash. They just need to do the cash transaction reporting.

Save the documentation for the IRS if they ask questions.

--Peter
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Depositing an amount over $10k leads to the forms and inconvenience.

Depositing several large cash amounts, each under $10k, leads to a Patriot Act audit. Banks are required to be able to detect people trying to avoid filling out the form.
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Depositing several large cash amounts, each under $10k, leads to a Patriot Act audit.

Though I'm not a fan of the PATRIOT (remember they sat up at night figuring out an acronym) Act, we can't blame currency transaction reporting on it. The requirement dates back to at least the 90's.

Phil
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Would eight of $5K deposits spaced over a couple of months avoid all unnecessary attention? Could even be done at an ATM.

Depositing cash at an ATM is a bad idea. Attempting to deposit $5K in one transaction at an ATM is not possible. Unless he is holding $1,000 bills, it would not fit through the slot.

Debra
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