How the Bank Secrecy Act Works
There is a general rule that any person in a trade or business must file Form 8300 if their business receives more than $10,000 in cash from one buyer. This can be the result of a single transaction or of two or more related transactions. The rule can apply to an individual, a company, corporation, partnership, association, trust, or an estate.
Form 8300 must be filed by the 15th day after the cash transaction took place. This requirement is applicable if any part of the cash transactions occurs within the United States, its possessions or territories. There is a list of exceptions that do not call for such scrutiny. Government departments or agencies and companies listed on major North American exchanges are examples of exempt parties.
One ongoing concern has been that once the information is reported, that information can be accessed by the government without a warrant. This means that, conceivably, the government could cross-reference the reported cost basis on the sale of an object with the reports filed when the item was acquired. This requires that information will need to be gathered and kept with more accuracy than the box of papers some now use.
The Impact on Planning for Artists and Collectors
These requirements, and the proposed tax law changes, means that art and other tangible and intangible assets, such as copyrights, NFTs and mineral rights to real estate, cannot be just lumped into the same estate planning techniques that work for financial assets, as is commonly done today. The processes and procedures needed to comply with the Bank Secrecy Act mandate that information needs to be recorded and organized; the provenance and prior ownership needs to be researched and documented; tracking the success or failure of sales of similar items in the market; providing access to the necessary expertise and experience to value and determine what is a suspicious transaction; and to make use of the digital tools available without placing the information gathered and reported at risk from cyber-attacks.
Artists and collectors need specialized fiduciary services now more than ever. Many use trusts, foundations and other entities as part of their estate planning for their collections. This added layer of reporting means rethinking many estate plans.
Conclusion
This act is a good thing if it helps rid the art and antiquities market of the influence of illicit and illegal buyers, sellers and dealers. Since the Bank Secrecy Act has very few guidelines defining transactions which are considered suspicious, it is up to collectors and artists to proactively plan that they will need to report transactions the same as financial institutions do today. Much will depend on how the FinCEN drafts the new rules to apply to the art market, but a new type of planning, and a new type of fiduciary, is bound to emerge.
Matthew Erskine is managing partner of Erskine & Erskine in Worcester, Mass., which provides legal and fiduciary services for unique assets.