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#1796143 - 03/19/13 02:55 PM Customers - cashing checks for business services
Tryin-2-Comply Offline
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I have a couple of scenarios I need input on.

1) We have several customers who cash checks on a regular basis which are clearly for business services. (construction, roofing, heat and air, nail salon, etc.). The problem with the majority of them - they only have a consumer checking account with us. Mgt. has never enforced that these customer's open a business account. The bank has filed SARs on some of these customers indicating possible tax evasion as there are no clear payments for tax payments, employment payments, or any other business related payments. Most of the customers do not have accounts at other banks.

2). Customers with business accounts who cash business checks rather than deposting the checks into the business account. There are several that have SARs filed on those as well because it appears they are avoiding counting the revenue. Some of these customers have loan accounts with us and their tax returns do not match the total revenue that has been seen.

How do other banks handle these types of situations?

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#1796181 - 03/19/13 03:51 PM Re: Customers - cashing checks for business services Tryin-2-Comply
Elwood P. Dowd Offline
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1) Your bank is voluntarily engaging in a practice that you have correctly classified as "suspicious" when it could eliminate the problem by just saying "No." That makes your bank look a bit, er, confused...

2) All SAR worthy activities. In addition, cashing checks payable to a business entity could readily leave your bank liable to other owners of the business, its creditors, a trustee in bankruptcy, or the Internal Revenue Service. Again, it puts your bank in a bad light and its the kind of risk you do not get compensated for.
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#1796195 - 03/19/13 04:04 PM Re: Customers - cashing checks for business services Tryin-2-Comply
Tryin-2-Comply Offline
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Another question on 1) - what if the checks are payable to John Smith - vs. Smith's Roofing - or in the memo line it states, new roof. We all know he is a self employed roofer and these clearly should be deposited to a business account.

thoughts???

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#1796204 - 03/19/13 04:13 PM Re: Customers - cashing checks for business services Tryin-2-Comply
MrsSmithCRCM Offline
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I have the same exact situation here. Individual cashing checks payable to his name, which is part of business name- ex.- John Smith runs Smith's Roofing- Check payable to "Smith" memo line has business type- "new roof" I know this is SAR worthy, my question is the dollar amount before it is required to file on. As a practice we deny this, however it seems like we need to train again.

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#1796206 - 03/19/13 04:15 PM Re: Customers - cashing checks for business services Tryin-2-Comply
rlcarey Online
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these clearly should be deposited to a business account

That is totally up to the bank.

Regarding the cashing of check made payable to businesses - run this scenario by management also when they revisit this process. The IRS selects one the business on which you filed a SAR. You then receive a subpoena for a copy of every check you have cashed made payable to this business for the last three years from the IRS. How much manpower is that going to take to identify every one of these transactions?
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#1796208 - 03/19/13 04:17 PM Re: Customers - cashing checks for business services Tryin-2-Comply
rlcarey Online
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I know this is SAR worthy?

Why? People right me checks payable to me all the time for my consulting practice. Whether I deposit them or cash them, how does that fact alone make that SAR worthy?
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#1796244 - 03/19/13 05:20 PM Re: Customers - cashing checks for business services Tryin-2-Comply
MrsSmithCRCM Offline
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If he is avoiding reporting income/evasion, and it is unusual for an individual to constantly be cashing checks (larger amounts) when they have a business account set up for these payments. Our policy is not to cash these checks, but obviously we have not been following our own policy.

so is there a dollar threshold that I should be concerned about to trigger filing or is this just a "train and move on" situation?

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#1796251 - 03/19/13 05:27 PM Re: Customers - cashing checks for business services MrsSmithCRCM
Elwood P. Dowd Offline
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You have a "suspect," so the dollar threshold is $5,000. That would be cummulative; i.e. you would add transactions on different dates together. There is no guidance on how far back you would have to look...
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#1796255 - 03/19/13 05:30 PM Re: Customers - cashing checks for business services Tryin-2-Comply
MrsSmithCRCM Offline
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Great, thank you. That's what I was thinking, thank you for confirming!

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#1796271 - 03/19/13 05:58 PM Re: Customers - cashing checks for business services Tryin-2-Comply
John Burnett Offline
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Going back to Randy's comment on cashing checks payable to him for a moment -- unless you have some other reason to characterize cashing these checks as tax evasion -- and by that, I mean something more than the lack of evidence that taxes are being paid -- I can't see how you can make the leap to a suspicion of tax evasion. When Randy cashes a check he's earned as a consultant (assuming it's payable to him and not to his business name if he uses one), it's not your concern whether Randy keeps a careful set of books reflecting every dime he's earned and every tax deposit he's made.

The better argument, in my mind, involves checks payable to a business that the IRS has issued you a subpoena on.
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#1796277 - 03/19/13 06:06 PM Re: Customers - cashing checks for business services John Burnett
Elwood P. Dowd Offline
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The example may be open to interpretation as to whether the payee is the business or the individual:

Quote:
Check payable to "Smith" memo line has business type- "new roof" I know this is SAR worthy,


Even if it's payable to the individual, the memo line should be enough to make anyone wonder. If it's payable to the business (sole proprietorship or otherwise) cashing it was a poor decision.
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#1796299 - 03/19/13 06:33 PM Re: Customers - cashing checks for business services Tryin-2-Comply
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"Even if it's payable to the individual, the memo line should be enough to make anyone wonder."

If banks have to pay attention to what is written in the memo line of every check they cash and make a quantum leap, the SAR totals are going to go dramatically up. smile

The fact that I don't operate as a "dba" and my clients may write me a check made payable directly to me for services and put "consulting" in the memo line has no bearing on whether or not that action results in tax evasion. I keep meticulous books and so may these people. How I choose to receive the funds whether deposited into my account or in cash to stuff under my mattress really does not rise to the level of suspicious in my mind without any other further information.

Check made payable to a business name, is a whole other issue.
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#1796305 - 03/19/13 06:40 PM Re: Customers - cashing checks for business services Tryin-2-Comply
MrsSmithCRCM Offline
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What about just the "Smith"- not the full business name- could be for "John smith" or "Smith Roofing"... with the memo line. THis is a gray area. Ideally the teller would have followed our policy, but since the horse is already out of the barn...

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#1796310 - 03/19/13 06:43 PM Re: Customers - cashing checks for business services Tryin-2-Comply
rlcarey Online
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A check made payable to an ambiguous person or entity should be returned to the person standing in front of you to get a replacement check that is properly payable.
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#1796326 - 03/19/13 07:02 PM Re: Customers - cashing checks for business services Tryin-2-Comply
MrsSmithCRCM Offline
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True, and after thinking about this- the real issue is still not following policy. Like you pointed out, I have no knowledge of fraudulent intent, could be reporting it as income still.

Thank you everyone!

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#1796361 - 03/19/13 07:40 PM Re: Customers - cashing checks for business services rlcarey
Elwood P. Dowd Offline
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You seem to be taking this a bit personally...

If the local doctor, lawyer, or bank consultant had a business bank account yet cashed checks payable to himself or herself with business notations on the memo line I would consider a SAR filing. If there's no evidence that they are paying their staff in cash or need cash to operate their business, income tax evasion is the most likely scenario, but it's okay if we disagree.
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#1796384 - 03/19/13 08:13 PM Re: Customers - cashing checks for business services Tryin-2-Comply
Tryin-2-Comply Offline
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Thanks for all the comments. Our EIC agrees that both of these cases warrant SAR filings as the review of the accounts for both lack proper business practices. (payment of taxes, employment taxes, other business related activities) - but, we have a lot of this going on - and we are trying to figure out a way to nip it in the bud.....but local management is not listening.

Again, thanks for all the comments.

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#1796396 - 03/19/13 08:45 PM Re: Customers - cashing checks for business services Tryin-2-Comply
edAudit Offline
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"Our EIC agrees that both of these cases warrant SAR filings as the review of the accounts for both lack proper business practices."

Hopefuly for your sake the EIC is not determining if you should file or not.

The EIC should determine if you have sound practices to determine if a SAR is to be filed.

They may be tring to help you get local management to follow policy.
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#1796580 - 03/20/13 03:32 PM Re: Customers - cashing checks for business services Tryin-2-Comply
JacF Offline

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Originally Posted By: Tryin-2-Comply
Thanks for all the comments. Our EIC agrees that both of these cases warrant SAR filings as the review of the accounts for both lack proper business practices. (payment of taxes, employment taxes, other business related activities) - but, we have a lot of this going on - and we are trying to figure out a way to nip it in the bud.....but local management is not listening.

Again, thanks for all the comments.
I think your EIC is reaching on this one. Does Smith the Roofer even have employees? How would you know? Does he have other business accounts elsewhere? How would you know? Is he a sole proprietor? Then he could be including every penny of his receipts on his Schedule C when he files his personal income tax return? How would you know?

I'm sorry, it takes a huge assumption to go from "he cashes checks that he earned" to "I need to report this activity, since his doing so means he will not properly account for these earnings 9 months from now."

Tax Evasion is still not a listed reason for filing on the SAR form, and I have only heard of "unofficial" mandates to report it. And the reasons are simple: Tax evasion simply cannot be ascertained based on transactiosn that happen at or through a bank, since tax evasion is inherently about a person failing to do something, instead of actually doing something. That today's transactions involve a potential tax liability that is to be accounted for at a future date, and you have no normal way of determining whether or not your depositor is meeting this obligation anyway, to report tax evasion, in and of itself, involves a huge assumption on the part of the bank.

If activity that is actually believed to be suspicious in it's own right is also indicative of tax evasion, I would suggest noting it on your SAR. But as a standalone event, with no other reason, I don't see where tax evasion could even be reportable, much lesss how the bank can legitimately quantify it.

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#1802163 - 04/05/13 07:49 PM Re: Customers - cashing checks for business services rlcarey
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Originally Posted By: rlcarey

The fact that I don't operate as a "dba" and my clients may write me a check made payable directly to me for services and put "consulting" in the memo line has no bearing on whether or not that action results in tax evasion. I keep meticulous books and so may these people. How I choose to receive the funds whether deposited into my account or in cash to stuff under my mattress really does not rise to the level of suspicious in my mind without any other further information.


I have to say that I totally agree with this. It shouldn't be the bank's position to determine whether or not the customer is paying taxes. Maybe they guy (my assumption is a DBA) prefers to have the funds in cash rather than in a bank account. Who's to say that he isn't reporting the income on his taxes? Even if he isn't that is not your call to make.

If it is suspicious, go for it. If you are playing "citizen cop", I think you are overstepping.

Who knows, perhaps he likes to use $20's as toilet paper.
Last edited by Garret01; 04/05/13 07:54 PM.
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#1802626 - 04/09/13 11:33 AM Re: Customers - cashing checks for business services Elwood P. Dowd
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I agree with you Ken. Sole proprietors, doctors, lawyers, consultants can easily evade taxes by cashing checks made payable to their name. A prudent business person deposits all business income in order to establish a paper trail.

At a previous bank we had a contractor that was cashing checks to his personal name for years. We filed SARs. We eventually received a subpoena from the IRS and a few years later he ended up in jail for tax evasion. When I read about it in the paper I was shocked. He had not paid taxes on over $2 million in income.

Most auditors and examiners that I have worked with over my career would expect the bank to file a SAR for this type of activity. Remember, we aren't required to KNOW or PROVE the activity is suspicious. We are required to file if it APPEARS suspicious.
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