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LEGAL CENTS: How to handle cash-only clients

By: Jane Pribek//April 9, 2014//

LEGAL CENTS: How to handle cash-only clients

By: Jane Pribek//April 9, 2014//

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Jane Pribek is a former family law attorney and Wisconsin Law Journal’s editor-at-large. She can be reached at [email protected].

Cash is king in most arenas, except the law office.

While most attorneys are probably paid with personal or business checks, it’s likely that at some point in your career, a client will pull out a wad of bills. At the time, it might seem like cause for celebration, especially if you’re growing weary of making collection calls.

But it also can mean trouble for both the attorney and client, according to Milwaukee lawyer Ray Dall’Osto.

Under 26 U.S.C. §6050I and 31 C.F.R. §1010.330(a), persons who receive cash in excess of $10,000 in either one transaction or two or more related transactions must, within 15 days of receipt, report it to the IRS on “Form 8300.”

Cash, by the way, includes currency as well as cashiers’ checks, money orders, bank drafts and travelers’ checks.

The rule dates to the 1970s, Dall’Osto explained, but back then it only applied to banks accepting cash deposits of $100,000 or more. Then in 1988, the sum was lowered to $10,000 and expanded to all professions, including lawyers. The goal is to ferret out money-laundering.

Violators are subject to stiff penalties. Specifically, anyone who willfully fails to file can be fined as much as $250,000 and faces up to five years in prison.

For attorneys, professional discipline also is likely. And the penalties can be levied against anyone who attempts to help another arrange a transaction so as to avoid the form.

After lowering the threshold for when the report is required, the government then began targeting particular professions: furriers, luxury car dealers, jewelers and yes, attorneys.

For example, in 2011, attorney Anthony Luna, a former court commissioner in Los Angeles, was sentenced to 12 months in prison, six months home detention, 50 hours community service, a $40,000 fine and all amounts owed to the IRS for the structuring advice he gave to clients in the form of legal services.

Yet, the client who wants to pay in cash might have entirely legitimate reasons for doing so. Wisconsin is home to many businesses where patrons pay with cash, such as restaurants, bars and bowling alleys, Dall’Osto reminded.

Also, some practice areas, such as family law and criminal defense, serve clients who might have tapped into the proverbial stash under the mattress for emergencies.

And, perhaps it’s a stereotype, but some clients past a certain age are more likely to favor cash. If they were kids during the Depression, or were raised by parents who suffered greatly during those times, they might not entirely trust banks.

Here’s where it gets difficult for lawyers, according to Dall’Osto. Clients who wish to pay in cash and will be subject to the requirement should give informed consent. Yet, if they ask questions about ways to avoid it, and the lawyer answers them, is the lawyer abetting structuring … or merely giving legal advice?

Clients, understandably, might be hesitant to disclose their names, Social Security numbers, address and other contact information for an IRS database that’s presumably shared with other government agencies.

And, the rule appears to contravene the Court of Appeals’ decision in DeBardeleben v. Ethics Board, 112 Wis.2d 324 (1983), Dall’Osto said.

The reporting requirement also potentially can result in a conflict between the attorney and client if, for example, the client wishes to pay in cash an amount greater than $10,000, but declines to authorize the lawyer to file the Form 8300. It’s clearly in the lawyer’s interest to comply in full with all legal requirements as to reporting, but it may not always be in the client’s interest to do so.

The National Association of Criminal Defense Lawyers and other groups challenged the law when it was expanded to all professions, and lost.

So the rule is here to stay.


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