There is no doubt that the Compliance Arena is as dynamic as it can get...
I've seen all sorts of schemes, scams, and shams...but this one is new for me..

On a monthly basis, ABC company (cash intensive business) writes a check in the amount of $7500 payable to ABC Company and referencing payroll as the purpose. Then the check is deposited into the same account. Basically, the on-us check is nulled since it gets deposited into the account it came from. According to customer, this transaction is for bookeeping purposes and to document payroll...
It smells like tax evasion but who knows...

Has anybody seen anything like this before? Any ideas..

They probably pay their employees in cash and this is what they say, to document payroll. Although an exact amount is a little unusual unless there are only a couple of owners and they each take the same draw on a monthly basis. Do they pay any taxes out of the account?

They do submit tax payments to IRS via ACH. The amounts are between 16-18% of the $7K check they make payable to the company.

Doesn't sound terribly unusual in that case.

So, they presumably take cash out of the drawer to pay themselves and then issue and deposit a check? Turning on the same point as rlcarey, the evidence of a significant amount of withholding, leaves me simply scratching my head, not reaching for a SAR.

The IRS isn't going to accept a boomerang check as evidence of payroll, but that's not your issue.

I've seen businesses, particularly mom & pop shops, do that for a number of different reasons. All of them related back to references for their bookkeeping system. I found it strange and warranting investigation, but never worthy of a SAR.