Someone told me that every time I am involved in a transaction of
$10,000 or more, I get a "hit" on the IRS computers. If I have too
many hits, then they will audit me, or something like that (I'm not
sure of the exact consequences). This situation is about an
individual, not a business. I am more interested in the $10,000
transaction part and the consequences of that rather than just the
audit part.

Is this true? What happens and in what situations?

Hello dasaini408,

Thank you for your question.

To prevent money laundering, any transaction that adds up to $10,000
(be this one check or cash amount or several amounts that seem to the
bank employee to be done solely for the purpose to not be reported as
a $10,000 sum, such as two deposits of $5,000 or four deposits of
$2,500) is reported to a government agency, which can report it to the
IRS.

Wikipedia entry-- Money Laundering
http://en.wikipedia.org/wiki/Money_laundering

'In the United States, for example, cash transactions and deposits of
more than $10,000 are required to be reported as "significant cash
transactions" to the Financial Crimes Enforcement Network (FinCEN),
along with any other suspicious financial activity which is identified
as "suspicious activity reports".'

Bank employees are required to report this activity when they see it.

FINCEN can report the suspicious monetary activity to many different
government agencies, including the IRS.

Wikipedia entry-- FINCEN
http://en.wikipedia.org/wiki/Financial_Crimes_Enforcement_Network

"Their primary purpose is to gather information on the movement of
large or suspicious amounts of money, and to increase the
communication about that movement to various domestic and
international law enforcement agencies, including the Bureau of
Alcohol, Tobacco, Firearms, and Explosives, the Drug Enforcement
Administration, the Federal Bureau of Investigation, the Secret
Service, the Internal Revenue Service, the Customs Service, and the
U.S. Postal Inspection Service."

Whether the IRS will audit you or not is dependent on whether FINCEN
reports the suspicious activity to the IRS. If the IRS gets reports of
your bank account receiving large amounts of money that have not been
reported to them or from which taxes have not been paid, they would
certainly proceed to auditing.  FINCEN or the FBI might conduct an
investigation if large amounts of money are going through your
account, on suspicion of money laundering.

Search strategy:

Personal knowledge 
+
Google search:
money laundering wikipedia

If you need any additional clarification, let me know and I'll be glad
to assist you.

--keystroke-ga

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Request for Answer Clarification by dasaini408-ga on 13 Nov 2006 16:04 PST

So this only applies to bank transactions? Not if I put a 10k down
payment on a car or buy a big purchase like furniture?

---

Clarification of Answer by keystroke-ga on 15 Nov 2006 06:10 PST

Hello dasaini408,

Thanks for asking for clarification.

Yes, this is only for money that could possibly be seen as being
"funneled" into a bank account.  If you are buying a car for $10k,
that seems pretty legitimate and would not be considered something
that a money launderer would do so it's not looked at.

Research_help-ga is also correct that this particular tactic only
includes cash payments-- checks can be traced and so would not be used
for money laundering.  Depending on who those checks are from, the IRS
could still follow the "money trail" and try to initiate an audit if
they think that person has been receiving unreported income.  But it
is not automatically reported as with cash!

--keystroke-ga

I think something needs to be emphasized that was glossed over in the
answer: this is CASH only.  This only involves transactions where you
walk into or out of the bank carrying over $10,000 in cash.  Also, the
bank and the teller do have some discretion as to the amount of
paperwork, if any, that is filled out. Bank tellers are instructed not
to discuss the reguation with customers so that customers do not come
up with ways to avoid the reporting.