Why Money Laundering?

[Legalqu]

California (only U.S. law)

So I have always had a question about money laundering that you see in books/movies/the mob, etc.... If I am not mistaken, the IRS does not have the power to force you to show "how" you earned income... So if a criminal makes XX million dollars and then declares all of that money as income and subsequently pays the proper amount of taxes on that money, why bother with tax evasion or money laundering? Assuming that the DEA or ATF, or FBI or some other agency has no case against you, is there any downside to just declaring your income and paying taxes? Couldn't you just say that the money is from confidential Consultant work? I guess I just don't understand why people like Al Capone didn't just declare what they earned since no government agency was able to find any criminal proof against him other than tax fraud...

 

[Zigner]

We don't do hypotheticals.

 

[Legalqu]

Alright

Alright, then use the non hypothetical case. Why did Al Capone not just report his income and pay taxes, since the government had no criminal case against him. He is the best example I can think of, though I imagine there are many more people who have fallen to Tax evasion or Laundering/RICO charges when the government had no other method to arrest them. Or, I guess a plain answer to the question, "Can the IRS force an individual to prove how they earned the income they declared?

 

[Zigner]

Alright, then use the non hypothetical case. Why did Al Capone not just report his income and pay taxes, since the government had no criminal case against him. He is the best example I can think of, though I imagine there are many more people who have fallen to Tax evasion or Laundering/RICO charges when the government had no other method to arrest them. Or, I guess a plain answer to the question, "Can the IRS force an individual to prove how they earned the income they declared?

Ask Al.

Your other question is still a hypothetical...

 

[tranquility]

Alright, then use the non hypothetical case. Why did Al Capone not just report his income and pay taxes, since the government had no criminal case against him. He is the best example I can think of, though I imagine there are many more people who have fallen to Tax evasion or Laundering/RICO charges when the government had no other method to arrest them. Or, I guess a plain answer to the question, "Can the IRS force an individual to prove how they earned the income they declared?

Because...taxes?

Criminals don't report their income illegally obtained as it will be a red flag on their returns and it will cost them money. Yes, big Al went to prison for tax evasion. If different people talked, he could have gone for murder. The government put together a case of records and of witnesses and of an error of endorsing a check. He didn't pay his taxes because it would have cost him a lot of money. Instead, he used that money to bribe and intimidate witnesses and hide records of his crimes.

The IRS does not need to prove how income was earned. They care, but they don't really. One problem with a criminal reporting all the income was illustrated by a marijuana "co-op" shown on television a few years back. They reported all their income and then took deductions for the ordinary and necessary expenses of doing business. However, the law does not allow for the sellers of marijuana to deduct anything other than the money it takes to buy the drugs as a deduction (Actually, cost of goods sold.). That was even for a "legal" sale of marijuana. The tax burden was crushing. Along with the lack of deduction, the IRS denied some of the COGS deduction because of poor record keeping. So, to pay taxes legally and not get hammered beyond all words, GOOD RECORDS MUST BE KEPT. And, those records are subject to examination by the government.

Criminals tend to not have good records they want the government to look at.

 

[justalayman]

and if you believe showing up with a million bucks, and even paying taxes on it, isn't going to raise some red flags and quite possibly result in a criminal investigation, guess again. While the IRS doesn't have the power to demand you show the source of the money, the criminal court system does.

 

[quincy]

Because...taxes?

Criminals don't report their income illegally obtained as it will be a red flag on their returns and it will cost them money. ... Instead, he used that money to bribe and intimidate witnesses and hide records of his crimes. ...

... Criminals tend to not have good records they want the government to look at.

Detroit's former mayor, Kwame Kilpatrick, is a good modern-day example. Indicted in 2010 on federal fraud and tax charges, he is now serving 28 years in prison.

 

[ecmst12]

Not that I think that crime shows on TV are realistic, but whenever someone is suspected of a crime on TV, one of the first things they suggest is "follow the money", get warrants to pull financial records and see where the money comes from and goes to. If you want to fly under the criminal radar, better have good explanations for where it all comes from.

 

[LdiJ]

and if you believe showing up with a million bucks, and even paying taxes on it, isn't going to raise some red flags and quite possibly result in a criminal investigation, guess again. While the IRS doesn't have the power to demand you show the source of the money, the criminal court system does.

While that seems logical, the IRS is actually not permitted to share tax return information with other government agencies. The law was written that way to help encourage people to be honest about their income. I am not saying that there could not be circumstances under which it could happen, but it would generally be a reverse situation...as it was with Al Capone. The feds did not get his tax returns in order to prove a crime, they encouraged the IRS to audit him in order for the IRS to charge him with a crime. That isn't the way it was made to look in the movies, but that is what actually happened.

 

[OHRoadwarrior]

There are a bunch of ITIN taxpayers claiming children that do not even live in the US to the tune of billions. Never underestimate the inability of the gov't to function.

and if you believe showing up with a million bucks, and even paying taxes on it, isn't going to raise some red flags and quite possibly result in a criminal investigation, guess again. While the IRS doesn't have the power to demand you show the source of the money, the criminal court system does.

 

[justalayman]

While that seems logical, the IRS is actually not permitted to share tax return information with other government agencies. The law was written that way to help encourage people to be honest about their income. I am not saying that there could not be circumstances under which it could happen, but it would generally be a reverse situation...as it was with Al Capone. The feds did not get his tax returns in order to prove a crime, they encouraged the IRS to audit him in order for the IRS to charge him with a crime. That isn't the way it was made to look in the movies, but that is what actually happened.

not talking about the IRS being involved anywhere. There are many other checks and balances and "eyes" watching your money that are involved in the criminal concerns of the issue. Given we now have the crime of structuring which was not around when Capone was in business as well as many other watchdog laws and rules, it is much harder to just show up with large sums of money and it not raise a red flag somewhere.

 

[LdiJ]

There are a bunch of ITIN taxpayers claiming children that do not even live in the US to the tune of billions. Never underestimate the inability of the gov't to function.

Only children who live in Mexico and Canada (and that is per treaty). Also, all they get for the children is the dependency exemption if the children are not in the US. They don't get any of the child related credits.

 

[davew128]

Detroit's former mayor, Kwame Kilpatrick, is a good modern-day example. Indicted in 2010 on federal fraud and tax charges, he is now serving 28 years in prison.

Yet former Ways and Means Chairman (as in the guy who WRITES tax law) Charlie Rangel barely got a congressional censure for not reporting his rental income from properties in the Caribbean.

 

[OHRoadwarrior]

Incorrect. In fact the issue of improper ITIN returns claiming child credits has attracted the attention of the senate and congress. They have not addressed it legislatively yet. I suggest you research the topic. It is costing the Federal gov't a fortune.

http://www.treasury.gov/tigta/auditreports/2011reports/201141061fr.pdf

Only children who live in Mexico and Canada (and that is per treaty). Also, all they get for the children is the dependency exemption if the children are not in the US. They don't get any of the child related credits.

 

[Ohiogal]

I find that the best way to launder money is through dry cleaning. When you put bills in the washer, they can get torn. And the heat isn't good for them from the dryer. And I have yet to figure out the perfect detergent. Unscented? Perfumed? Do you use bleach?