Be Wary of Signs and Ads Offering To Pay Cash for Your Home

This reminds me of a consultation I had last week with a client who was considering selling her house. First, she was worried about her taxable gain because she couldn’t recall how much she had paid for the property seven years earlier. When I discovered that she was looking at selling for only $80,000, I explained that her cost basis was irrelevant, since she qualified for up to $250,000 of tax free gain.

Then, she explained the second area of concern. The buyer was going to pay her with a check for $40,000 and the other $40,000 in actual cash. He had stipulated that a condition of the sale was that she could not deposit the cash into her bank account. She claimed that he was a prominent local business owner, and that the source of the money was legitimate, and that was how he always did business. After more questioning, she explained that the offer was $9,000 under the most recent appraisal and she wasn’t desperate to sell.

While she wasn’t in the business of selling real estate, so that filing Form 8300 (Report of Cash Payments Over $10,000 Received In a Trade or Business) with IRS for the cash received wouldn’t technically be mandatory, the situation struck me as having potential to fall under the following from the 8300’s instructions.

Voluntary use of Form 8300. Form 8300 may be filed voluntarily for any suspicious transaction (see Definitions) for use by the IRS, even if the total amount does not exceed $10,000.

Suspicious transaction. A transaction in which it appears that a person is attempting to cause Form 8300 not to be filed, or to file a false or incomplete form. The term also includes any transaction in which there is an indication of possible illegal activity.

When I explained that the potential penalty for not filing the 8300 could be the full amount of the cash received ($40,000), my client decided it would be best to stay away from a sale under these suspicious conditions. While the $40,000 cash the buyer was offering could very well be perfectly legitimate, the fact that he wanted it kept secret sends up red flags with any normal person.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/01/2006 08:18:00 PM Send this post: