Magic Money and the IRS

[RickJay]

@Shodan

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?

Beyond simply continuing to harass you, probably not. The harassment could get pretty severe, though, depending how you manage your relationship with the authorities.

The “whaddya do with a pile of cash” thing is something I’ve ruminated on a lot basically since watching “Breaking Bad.” It’s a fascinating problem; imagine having all the money you could ever want but in a form that invites perpetual suspicion. You can’t go buy a nice house with a suitcase of cash. In a way, your scenario is sort of easy, in that the IRS already knows. If you had to absorb that kind of dough in a way the IRS couldn’t find out it’d be a full time job in and of itself.

[Shodan]

@Gus_Gusterson

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.

Thanks!

Unfortunately, the genie only sent the following -

*Dear IRS-

We happen to know that Shodan, who lives at 123 Sunnybrook Lane, Smalltown USA, receives $50,000 a month.

Thought you would want to know.

Love and kisses,
A Friend*

It’s a magic letter, so it is believed. So the IRS checks and sure enough, I am reporting every dime. Can they demand that I tell them where I am getting the money?

Regards,
Shodan

[RickJay]

No, but they could simply take it and there’s nothing you can do about it. Civil forfeiture.

In an amazing recent case, the IRS seized a small grocery store’s bank account and kept all the money just because they didn’t like the store depositing its revenue in cash. Since fining the store would require proving wrongdoing and there was no evidence of that, the IRS technically arrested the cash. The case is actually called “United States v. $35,651.11 In U.S. Corrency.” I swear to God. After a considerable degree of media attention they gave it back but there’s a zillion other civil forfeiture cases where they didn’t.

So, if they wanted to , they could just come on the 15th of the month and take your money. There’s very little you could do to stop them, at least in the USA.

[Flywheel]

@RickJay

The case is actually called “United States v. $35,651.11 In U.S. Corrency.”

Musta been counterfeit.

[Shodan]

@RickJay

Beyond simply continuing to harass you, probably not. The harassment could get pretty severe, though, depending how you manage your relationship with the authorities.

I would manage the relationship by
[ul][li]Paying every penny of my tax[/li][li]Deposit the cash in the bank every month.[/li][li]Filling out the correct paperwork (whatever the form is you have to fill out whenever you deposit more than $10K or whatever it is)[/li][li]Never saying nothing to nobody. If anyone else (besides the feds or Department of Revenue at my state) asks, I am living off some investments. [/ul][/li]

The “whaddya do with a pile of cash” thing is something I’ve ruminated on a lot basically since watching “Breaking Bad.” It’s a fascinating problem; imagine having all the money you could ever want but in a form that invites perpetual suspicion. You can’t go buy a nice house with a suitcase of cash. In a way, your scenario is sort of easy, in that the IRS already knows. If you had to absorb that kind of dough in a way the IRS couldn’t find out it’d be a full time job in and of itself.

I started thinking about it after I saw the movie A Simple Plan. How do you launder cash and get away with it?

My first impulse is always to go directly to the cops and hope to keep as much as I could under the well-known legal principle of “finders keepers, losers weepers”. Failing that, I wonder how long my self-control would allow me to spend cash only on transactions under the radar - all my groceries, eating in restaurants and paying cash, etc. , clothes. But like you say you can’t buy a car or a house or stocks or much really worth having without signalling to the world that you have more money than you can account for.

Hence this thread. Maybe a better idea is to deposit a certain amount every month, pay the taxes on it right away, and don’t tell anyone where it came from. That scenario is slightly different, in that keeping lost property (like a briefcase full of $100 bills) is legally stealing, even if it belonged to a drug lord. So you are covering up a crime that you wouldn’t be if a genie gave you the dough.

Regards,
Shodan

[leahcim]

@RickJay

In an amazing recent case, the IRS seized a small grocery store’s bank account and kept all the money just because they didn’t like the store depositing its revenue in cash

…and structuring its deposits specifically to avoid reporting IRS reporting requirements, which is illegal even if the money is perfectly legal otherwise (and outright admitting that that was the reason they were doing it).

So, if you deposit your genie-money in the bank, deposit all $50000 at once, not $9999 at a time.

[Shodan]

@RickJay

In an amazing recent case, the IRS seized a small grocery store’s bank account and kept all the money just because they didn’t like the store depositing its revenue in cash. Since fining the store would require proving wrongdoing and there was no evidence of that, the IRS technically arrested the cash. The case is actually called “United States v. $35,651.11 In U.S. Corrency.” I swear to God. After a considerable degree of media attention they gave it back but there’s a zillion other civil forfeiture cases where they didn’t.

I Googled around but I cannot find anything resembling an objective account of this case. Do you have a cite?

No offense, but I can’t shake the feeling that there is a little more to the government’s side of the story than “we just felt like it”.

Regards,
Shodan

[Shodan]

@leahcim

…and structuring its deposits specifically to avoid reporting IRS reporting requirements, which is illegal even if the money is perfectly legal otherwise (and outright admitting that that was the reason they were doing it).

So, if you deposit your genie-money in the bank, deposit all $50000 at once, not $9999 at a time.

Thanks for this.

As mentioned, I would be filling out all the paperwork necessary with scrupulous care. I am going to be entirely upfront and open about everything - except where I got the money.

Regards,
Shodan

[robert_columbia]

@iiandyiiii

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.

Here’s a thought. The genie was giving you a gift, right? In the US, normally the donor pays tax on a gift, not the donee. Of course, the IRS might not believe you and try to assess you as if the money was ordinary income. But could the IRS do anything if they couldn’t figure out the origin of the money but also couldn’t specifically identify it as ill-gotten?

[robert_columbia]

@Doctor_Jackson

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

Or, for the sake of the hypothetical and making it more plausible (heh heh), maybe the genie gets the money by trolling it from the bottom of the sea (e.g. from shipwrecks), wallets of dead people killed in mine collapses, landfills (all those pennies people accidentally threw away etc.), and D. B. Cooper’s wilderness grave (location: unknown to all but genies). In other words, it’s real money, but money that has already been lost and nobody is watching. So when that damaged diving suit with $120 at the bottom of the Marianas Trench gets robbed - nobody will notice.

[DrDeth]

@robert_columbia

Here’s a thought. The genie was giving you a gift, right? In the US, normally the donor pays tax on a gift, not the donee. Of course, the IRS might not believe you and try to assess you as if the money was ordinary income. But could the IRS do anything if they couldn’t figure out the origin of the money but also couldn’t specifically identify it as ill-gotten?

Yep. “Income is Income from whatever source derived” less specific exclusions. The burden is on the IRS to show your income, the burden is on you to show it’s excluded (gift) income.

[leahcim]

@robert_columbia

Or, for the sake of the hypothetical and making it more plausible (heh heh), maybe the genie gets the money by trolling it from the bottom of the sea (e.g. from shipwrecks), wallets of dead people killed in mine collapses, landfills (all those pennies people accidentally threw away etc.), and D. B. Cooper’s wilderness grave (location: unknown to all but genies). In other words, it’s real money, but money that has already been lost and nobody is watching. So when that damaged diving suit with $120 at the bottom of the Marianas Trench gets robbed - nobody will notice.

In the interests of fighting the hypothetical:

The OP specifically says that the $50000 comes in the from of “crisp new bills”, so the genie must be exchanging the soggy Marianas Trench money for new currency, either at a bank or at the mint. Either way between that and the 1099s, there will be a paper trail leading back to the genie.

Also D. B. Cooper’s stash had its serial numbers recorded. If our genie is making a habit of using that currency, he’s going to get himself taken in for questioning.

[Mr.Nylock]

What you want to do, see, is set yourself up as an 501© as “The Genie Liberation Society” and then all this money becomes an anonymous donation which is not taxed.

Or just keep it all, and hire the best damn tax attorney this side of the Mississippi.

That’s all I got.

[clairobscur]

@Shodan

I Googled around but I cannot find anything resembling an objective account of this case. Do you have a cite?

No offense, but I can’t shake the feeling that there is a little more to the government’s side of the story than “we just felt like it”.

Regards,
Shodan

The shop owner was depositing her money in increment slightly below the mandatory report limit in order to avoid having it reported, and admited to it which made her suspicious (that from a recent thread on the topic).

[thelurkinghorror]

Deposit >$10k cash = bank files Currency Transaction Report.
Buy >$3k in cashier’s check = bank files Monetary Instrument Log.
Do obvious shady stuff to avoid the above (e.g. deposit $9999, or change amount when informed of above, or deposit all of it under multiple accounts/banks = bank files Suspicious Activity Report.
You could launder but that’s illegal. Assuming you want to keep it nice, spending only cash (therefore can’t normally buy new cars etc.). Gambling winnings would be the least suspect, although note that single winnings >$1200 generates a form W-2G. That’d be a lot of gambling for small wins. You could be safer by actually gambling some of it to create a paper trail. Some months you have more that $50k some less (okay, more of the latter). Even if you like gambling this can seem a full-time job.

@Lemur866

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.

Some people say that all coppers are bastards. But others point out that the authority just attracts hardheads who enjoy the power. My point is - he’s a genie. Of course he’s an asshole. That turkey sandwich you ordered will be a little dry but hey! you now have a tiny piano-playing friend. If he were nice he’d be a pixie.

@DrDeth

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

No you wouldn’t. The genie would.

[Alley_Dweller]

@thelurkinghorror

No you wouldn’t. The genie would.

I know this often gets repeated on the internet, but it’s not strictly true.

You (the donee) can be held liable for gift taxes, interest, and penalties up to the amount of the gift if the IRS cannot collect from the donor.

Specifically, 26 U.S. Code § 6324 - Special liens for estate and gift taxes:

(b) Lien for gift tax
Except as otherwise provided in subsection (c), unless the gift tax imposed by chapter 12 is sooner paid in full or becomes unenforceable by reason of lapse of time, such tax shall be a lien upon all gifts made during the period for which the return was filed, for 10 years from the date the gifts are made. If the tax is not paid when due, the donee of any gift shall be personally liable for such tax to the extent of the value of such gift. Any part of the property comprised in the gift transferred by the donee (or by a transferee of the donee) to a purchaser or holder of a security interest shall be divested of the lien imposed by this subsection and such lien, to the extent of the value of such gift, shall attach to all the property (including after-acquired property) of the donee (or the transferee) except any part transferred to a purchaser or holder of a security interest.

The Internal Revenue Manual (IRM) Section 5.5.7.27 has some sobering revelations about unpaid gift taxes. Read it and weep.

[Little_Nemo]

I’m going to take my first stack of money and hire a good lawyer and a good financial planner. Then I’m going to let them figure out how I should best report this money’s existence. Magically appearing income is a problem I’ve never had to deal with.

[Lemur866]

Right, but you claiming it was a gift is hard, because who did you get the gift from, and did they pay the gift tax? I’m assuming the genie did NOT pay the gift tax, and there goes your “gift” argument. That means you have to report the income as ordinary income, not gift income.

The simple explanation to my tax preparer is: “I did a favor for a guy, who promised me a cash annuity of $50,000 a month for life. I don’t know who he is–I never did get his name–but I keep getting cash, and since it was compensation for some work I did involving removing a cork from a bottle, it is ordinary income as far as I can tell. So here are the taxes I owe on this money that I got this month, see you next month.”

And I would walk straight into my local bank every month with a stack of cash and deposit the full amount, not forgetting to remind the teller about the cash deposit reporting thingumy. “Structuring” to avoid reporting requirements is a crime. It isn’t worth it to try to keep some of the amount as cash and pay for some of my expenses with cash, that’s a pain in the ass, and this is a lot of money. If it was a thousand bucks in cash every month then I guess I’d try to spend it in cash–buy lunch every day and pay cash and you eat up hundreds of dollars.

But you can’t do that with this amount of money, you can’t do anything worthwhile like buy a house or a car or investments or any big ticket items without electronic money.

The reason drug dealers don’t just deposit fat stacks of cash in the bank is that’s suspicious, and when the cops follow you around it’s easy for them to collect evidence you’re a drug dealer. But they won’t find such evidence about you. And if they do seize some of your cash, ask politely for them to give it back but mentally write it off, just like you would if a mugger grabbed your cash on the way to the bank. You have to expect some thievery when you’re dealing with fat stacks yo. Don’t structure your finances such that you are dependent on a particular month’s cash to pay the rent. Heck, ask if you can pay the lease in advance.

The problem is that if the cops decide that any of your assets are the result of criminal activity they can seize those assets, not just the cash. So they can take your car, your house, your bank accounts, and so on. But the main advantage you have over a drug dealer is that next month you get a whole new pile of bills, even when the cops have you surveilled 24/7.

The other thing, get yourself a reputable tax attorney and talk it over with him. Put him on retainer. Ask for his advice and listen to it, and always cheerfully cut the revenuers a check for the full amount he says you owe. The above “I do a monthly unspecified favor for a rich person” story is probably going to go over better than “A genie gives it to me”. If your tax guy figures the “favor” is some sort of sexual services, that’s fine with me.

[Little_Nemo]

My opinion is the IRS isn’t really going to give a damn. Their goal is to make sure you’re paying your taxes. As long as you’re doing that, they don’t really care if you’re getting money from a genie, doing construction jobs off the books, performing in porn movies, or running an illegal dog fighting ring.

The question is how much information the IRS passes on to various law enforcement agencies and what investigations they conduct. They’re the ones who are going to suspect you’re doing something criminal and will put you under surveillance. If you’re under that kind of surveillance, they’re probably going to catch you breaking some law at some point. And then they’ll threaten you with legal harassment if you don’t reveal what it is you’re really doing. And they’re not going to buy your genie story.

[CarnalK]

In Canada the IRS equivalent, Revenue Canada, has pretty strict rules about information sharing. I would suspect it’s similar with the IRS. Otherwise they miss out on all that sweet “honest” criminal money.