Attorney-client privilege does not extend to requirement for cash reporting.

The IRS and attorneys have had an ongoing disagreement about whether the attorney-client privilege exempts attorneys from being required to report cash payments of more than $10,000 under Sec. 6050I.

Sec. 6050I states that any person engaged in a trade or business who receives more than $10,000 in cash in a single transaction must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, within 15 days of the date of the transaction. Regs. Sec. 1.6050I-1(c)(1) has clarified that cash includes U.S. and foreign currency, as well as monetary instruments with face value amounts of less than $10,000 (if the face value is more than $10,000, the funds would have been reported when the monetary instrument was purchased); these include cashier's checks, bank drafts and traveler's checks.

Persons who intentionally do not comply with Sec. 6050I are subject to a civil penalty of the greater of $25,000 or the amount of the transaction (not to exceed $100,000). In addition, criminal penalties may be imposed if a complete and correct Form 8300 is not filed. Anyone who causes or attempts to induce the receiver of the cash to fail to file or to file an incomplete return is subject to the same civil and criminal penalties.

The receiver of the cash is required to disclose the complete identity of the payor, including name, address and social security number. Also, if the funds were received for the benefit of another, disclosure must be made on whose behalf the payment was made. Complete disclosure of the nature of the transaction is also required, including the amount and form of the cash and the type of transaction. Lastly, information regarding the receiver of the cash (similar to that of the payor) is required.

The issue for attorneys is whether disclosure of this information is a violation of their canons of ethics. Attorneys are prohibited from disclosing information made by their clients in confidence. There have been numerous attempts by law firms to avoid Sec. 6050I disclosure, all resulting in the firms eventually having to comply. In some cases, such as Goldberger & Dubin, P.C., 935 F2d 501 (2d Cir. 1991), the clients even requested that the lawyers not make the disclosure. In the case of Garland, DC Ga., 1992, an argument was made that the disclosure was a violation of a person's constitutional right to counsel. The court rejected the argument that disclosure would have a "chilling effect" on the sixth amendment. Constitutional arguments under the fifth amendment also have been rejected, in Ritchie, 6th Cir., 1994.

Perhaps the final word on this issue comes from the Monnat case, DC Kan., 1994, in which an attorney filed an incomplete Form 8300, omitting the information on the payor. The Service issued a subpoena for the information. The Federal district court refused to issue a ruling, instead choosing to refer the case to the Federal court's committee on attorney conduct. This committee indicated that an attorney must report every cash transaction in excess of $10,000 to the IRS as required, even if the client appears to expect that his identity will not be revealed. The committee did not stop at this conclusion, however. It indicated that the attorney may inform the client that the cash payment will have to be disclosed to the Service. However, the attorney cannot suggest possible ways to avoid the cash reporting requirement without risking criminal prosecution based on the client's subsequent conduct.

The IRS is increasing its effort to stop underreporting of income from cash transactions. The effort by the legal profession to carve out an exemption appears to have failed.