Magic Money and the IRS

In My Humble Opinion
1

No idea if this is the right forum - mods, please move as necessary or appropriate.

Here’s the scenario - one Saturday afternoon, you are cleaning out the basement and you notice a lamp that wasn’t there before. You pick it up and try to rub off some of the dust to read the inscription on the side.

You guessed it - poof, a genie appears wearing a turban and a bored expression.

"Congratulations and all that - I am a magic genie, you released me, blah blah. This has happened a lot over the last eight hundred years, so we genies have worked out an arrangement.

One wish, not three. And we decide what you want. Saves time and trouble. What you want is $50,000 per month for the rest of your life. It will be adjusted for inflation. The money will appear in small, unmarked bills, in your bottom dresser drawer on the 15[sup]th[/sup] of every month.

That’s the deal, take it or leave it. No substitutions - do whatever you want with the money, we don’t care.

One more thing - we don’t want trouble with the IRS, because those guys scare us. So we will notify them using our Magic Genie Powers such that you are absolutely guaranteed that they will know you are getting the money, and they will audit you, although they will not know from where the money came.

Sign here. Thanks for your business."

And poof - he’s gone.

This is the 14[sup]th[/sup]. On the 15[sup]th[/sup] you look in the drawer - sure enough, $50K in crisp new bills.

So, not being stupid, you begin work on your quarterly income tax statement. You report the entire amount, pay all applicable taxes in full, and live a life of modest comfort on the remainder (somewhere around $350,000 a year).

But now you are audited. The nice IRS agent asks you where you got the money. How do you react? How does he react?

Do you
[ul][li]Tell him that where you got it is a secret? Can you refuse to tell where you got the money? [/li][li]Do you make up a story about where you got it? Do you try to document the story?[/li][li]Do you tell him a genie gave it to you? If you do, do you try to prove it by telling him to watch your dresser on the next 15[sup]th]/sup] of the month? [/li][li]Have you committed any crimes? What do you expect the IRS to do?[/ul][/li]
I look forward to the Dope’s usual mix of hard headed cites of tax law, inspired speculations, and creative attempts to fight the hypothetical.

Regards,
Shodan

2

I tell him I found it in my dresser drawer. I assume he’ll ask how it got there – I’ll tell him I don’t know exactly. I’ll tell him that I met a stranger who told me the cash would be in my drawer every month. “I don’t know exactly how he put it there. He told me the money was meant for me.”

They’ll ask me his name – I don’t know. They’ll ask me where he is – I don’t know.

3

And $350K per year is much, much more than “modest comfort”. :slight_smile:

4

I assume there would be secret service involvement because the currency you are given is counterfeit. Bills poofed into existence by a genie are known to not produced by the US Mint no matter how good replicas they are.

5

Right. But I’m assuming the Genie isn’t handing you counterfeit bills. That would be ridiculous. He has to give you actual genuine bills, otherwise he’s an asshole.

The problem comes, where did he get these bills? These are genuine bills, so they had to have been actually printed and released by those guys who do that thing, otherwise they’re counterfeit even if they’re indistinguishable from the real thing. So how did the Genie get ahold of them? Did he poof them out of some vault at the Federal Reserve? That’s stealing, and it doesn’t make it not stealing just because he hands his stolen money over to you. You’d be ethically obligated to return the money to the rightful owner, even if the rightful owner is a faceless bank that won’t ever notice that the third pallet of bills in the 2nd row of the third floor of the 8th vault is a little low.

So the only logical explanation is that the Genie got those bills legit. I mean, it would be pretty easy–poof gold bars into existence and exchange them for bills.

6

Nah, the “poofed” bills were previously existing in the Federal Reserve vaults. Books were magically updated to account for the dissapearance.

As to the IRS questions, I have no idea. I hope the 1099 the genie sends them says something about “consulting work”.

7

So the genie is embezzling instead of counterfeiting then?

8

Its easy to get real funds that arent stealing or counterfeit- every day thousands of bills are tossed away or accidentally destroyed, like in a house fire. Just have Genie recover them.

If you report it, the issue will be is it “other income” “earned income” or excluded tax-free income.

Claiming it’s a “gift” from a genie wont work. You’ll have to pay taxes.

Just claim its gambling income. No SE taxes on that.

9

makes sense. You gambled that the Genie was telling the truth.

As for the auditor, tell him truthfully that an annoymous benefactor delivers the $ to you every month. You perform several charitable acts every month (quick-start volunteering at the soup kitchen), and you have no idea which activity has attracted the attention if that is in fact why the benefactor found you. Other than that, you have no clue. Be willing to pay whatever the IRS wants. x% of a lot is better than 0% and a jail sentence.

10

The bills are legit - the genie just magicks up some jewelry and sells it in a bazaar for dollars. Like I said, they don’t mess with the IRS.

[QUOTE=DrDeth]
Just claim its gambling income. No SE taxes on that.
[/QUOTE]
Would you have to prove you had recently been to a casino?

Regards,
Shodan

11

Ultimately I don’t think the problem will be the IRS. You could simply tell them you won the money playing poker in casinos. People actually do that, after all, and file income tax returns accordingly.

Your problem is much likelier to be the DEA or the FBI. If you tell the IRS you’re winning at poker or something and are happy to pay your taxes, they’re happy. But if other law enforcement agencies are suspicious of your sudden influx of cash, they may come sniffing around, and they’ve been known to make life very hard for people with a lot of cash, up to and including simply taking it without the fuss and bother of a trial. A person getting money from a genie looks a LOT like a drug dealer, and it would not take the FBI/DEA much effort to crack the “I’m winning at poker” excuse, or any other excuse you could come up with.

12

Simple.

I take my dresser of drawers and move to a tax haven where I am no longer a US resident, making an income in the US. Sure, the IRS will ask why the hell I’m declaring an income in the US, being that I’m living in Belize. I don’t believe I’m required to answer any of their questions, or pay the actual tax.

13

Nope. only to claim losses.

14

I think you should say “It’s a complete mystery to me how the money gets into that drawer each month. I’ve tried and tried to catch someone putting it there - no luck. Maybe you guys can help figure this out. In the meantime, I just want to be sure I’m paying all taxes that legally apply.”

15

That’s very much what I wanted to get at.

Suppose the DEA decides I am a drug dealer. So they knock on my door and accuse me of dealing drugs. When they ask me where I got my money, I refuse to answer. If they want to get me the way they got Al Capone, they can’t. I paid all my taxes in full. I don’t have a dime of undeclared income.

I wouldn’t give an “gambling” excuse. I just don’t say anything.

Which goes to a question I asked in the OP -

Can I refuse to tell the IRS where I got the money? I am pretty sure I can refuse to tell the DEA or the FBI anything at all besides my name, address, and birthdate.

So when the IRS asks me where I got the money, I would either say “none of your business. Here’s the tax I owe, in full and on time, now go away” or “a genie gave it to me. Prove otherwise” if I have to answer.

So the FBI or DEA puts surveillance on me. They see me going about my business - going to the bank to deposit the cash on the 15[sup]th[/sup] of every month (and filling out all the proper paperwork right away), buying expensive cigars, shopping at upscale shops, and spending my money. They don’t see me doing any drug deals, because I don’t deal drugs.

They need a warrant before they can search my house, and even if they do, when they ask “How did that $50K get into your dresser drawer?” I answer “I do not choose to answer any questions at this time, and I wish to speak to a lawyer.”

Can they do anything else?

Regards,
Shodan

16

I would just say I had a moment of incredible inspiration and made a masterpiece of napkin art at Dennys. When a rich-ass guy walking by saw it, he just needed to have it. He offered me 50k a month for the rest of my life in boxes left on the back porch, but It had to remain as secret as possible. I agreed.

My serious answer is along those lines. I think about it and come up with a “Flea Market picture turns out be be a Picasso” sold to a secretive collector type story to explain it. I would do some research to make sure I picked something as plausible as possible, trying to avoid anything that might seem like it was stolen. But I no longer have it or the guy;s name, so sorry.

17

There are two main ways for the genie to tell the IRS about this money - submit a 1099 or provide a tip accusing you of hiding income. Assuming that the genie does the former (since we seem to be assuming that the genie isn’t an asshole) , the 1099 will include the name of the payer. If the genie doesn’t want you to get in trouble the payer will have to have a legit TIN. If you get audited you won’t have an issue with the IRS. You’ll just tell them you got the money from the payer listed on the 1099. As noted, other government agencies may come after you but the IRS just wants you to pay the taxes you owe. If they get a 1099 that says you received $600,000 and you list that 1099 on your tax return and pay the appropriate taxes (quarterly to avoid penalties), you will be in the clear with the IRS.

18

I think like a girl. I tell the IRS that I’m a rich man’s mistress and he gives me a cash allowance of $50K a month, with which I buy my furs, ferragamo’s and pay for my house.

Then I sigh deeply and heave my magnificent cleavage.

If some man wants to give me 50k a month, the IRS shouldn’t expect me to need a 1099.

19

IRS AGENT Where did I get the money?

ME Prostitution. (smiles at agent)

20

No no dear. A prostitute gets paid. A mistress gets gifts.

I realize it’s just a matter of scale, but you have to draw the line somewhere.