Money Laundering 101

How's that for a catchy title for a blog post?

My friend Richard says that I remind him of Barry the Money Launderer, one of the characters in his favorite TV series, Burn Notice.
I am not an expert in money laundering.  I know next to nothing about it.
This afternoon I ran into an overview of money laundering on the Cornell University Law School Legal Information Institute website.
I thought I would share this information with my readers, some of whom are apparently admirers of Barry the Money Launderer.

"Money laundering refers to a financial transaction scheme that aims to conceal the identity, source, and destination of illicitly-obtained money. 
The money laundering process can be broken down into three stages. First, the illegal activity that garners the money places it in the launderer’s hands. 
Second, the launderer passes the money through a complex scheme of transactions to obscure who initially received the money from the criminal enterprise.
Third, the scheme returns the money to the launderer in an obscure and indirect way."

This article then goes on to discuss the relationship of money laundering to tax evasion. The two go hand-in-hand. 

"Tax evasion and false accounting practices constitute common types of money laundering. 
Often, criminals achieve these objectives through the use of shell companies, holding companies, and offshore accounts.
A shell company is an incorporated company that possesses no significant assets and does not perform any significant operations. 
To launder money, the shell company purports to perform some service that would reasonably require its customers to often pay with cash.
Cash transactions increase the anonymity of customers and therefore decrease the government’s ability to trace the initial recipient of the dirty money. 
Money launderers commonly select beauty salons and plumbing services as shell companies. The launderer then deposits the money with the shell company, which deposits it into its accounts. 
The company then creates fake invoices and receipts to account for the cash. Such transactions create the appearance of propriety and clean money. 
The shell company can then make withdrawals and either return the money to the initial criminal or pass the money on to further shell companies before returning it to further cloud who first deposited the money."

None of my former or current clients are hairdressers or plumbers and I have never had a client whom I suspected of engaging in this type of activity.

In 1970 Congress enacted the Bank Secrecy Act which requires banks to report cash and currency transactions of over $10,000.00.
Money laundering is a federal crime under the Money Laundering Control Act of 1986. 

If you are a money launderer, I do not want you for a client.

- Mark S Gleason CPA
  www.lakes-cpa.com

Perhaps The Greatest Tax Cheat in History

Paul Daugerdas, a lawyer and certified public accountant from Wilmette Illinois, seems to have won the world record for the biggest tax cheat in all history. He was sentenced yesterday to 15 years in prison.

He was found guilty of tax evasion, mail fraud, wire fraud, conspiracy to defraud the IRS and of "corruptly endeavoring to obstruct and impede the internal revenue laws."

According to a press release issued yesterday by the Department of Justice, Mr. Daugerdas marketed and implemented fraudulent tax shelters used by wealthy individuals to evade over $1.6 billion in taxes owed to the Internal Revenue Service (IRS), yeilding
approximately $95 million in fees to Daugerdas personally. 

He was ordered to pay $371,006,397 in restitution to the IRS. 

Several other co-conspirators had already been convicted and sentenced for their parts in this massive 20 year scheme.

- Mark S Gleason CPA
  www.lakes-cpa.com

IRS Issues New Taxpayers' Bill of Rights

Here are your rights, according to the IRS:

1. The Right to Be Informed
2. The Right to Quality Service
3. The Right to Pay No More than the Correct Amount of Tax
4. The Right to Challenge the IRS’s Position and Be Heard
5. The Right to Appeal an IRS Decision in an Independent Forum
6. The Right to Finality
7. The Right to Privacy
8. The Right to Confidentiality
9. The Right to Retain Representation
10. The Right to a Fair and Just Tax System

- Mark S Gleason CPA
  www.lakes-cpa.com

IRS Releases Statistics of Income for 2011

The Spring 2014 issue of the IRS's Statistics of Income Bulletin was released last week.
This issue presents some interesting information on high-income individual income tax returns for 2011.
This document is available for download at  IRS.gov/taxstats.
You will find some interesting articles at the above link. I especially enjoyed Individual Income Tax Rates and Shares, 2011 by Adrian Dungan and Michael Parisi, economists with the IRS. This article discusses the individual income tax rates and tax shares and the computation of “total income tax” for 2011 and provides some historical perspective by describing the income tax structure, relevant law changes and concepts of taxation. Here are some of the highlights:

• The top 1 percent of tax returns had adjusted gross income (AGI) of $388,905 and accounted for almost 19% of all individual income for 2011. 
• These taxpayers paid over 35% of the total individual income taxes paid.
• The cutoff for the top 5 percent was AGI of $167,728.

Do you know what your AGI is?

- Mark S Gleason CPA
  www.lakes-cpa.com
 

Youth and Summertime: Dreaming about Tax Avoidance

Summer is almost here.  Although the official beginning of Summer is a couple weeks away, many college and high school students are already have found summer employment and are hard at work. Others will be starting their summer jobs in the weeks to come.

Now is a good time to help these hard working young people get their retirement savings off to an early start. Parents and grandparents (uncles and aunts too) can contribute up to $5,500 to a young worker's Roth IRA.  If properly invested, the funds can grow into hundreds of thousands of dollars by the time these youngsters retire at age 65 or 70. The funds can be withdrawn from the Roth account tax free after age 59 and a half.

This is an uncommon little loophole in our tax system that rewards people for working.
Contributions to Roth IRAs are subject to a dollar limit ($5,500 for 2014 for singles under the age of 50) and an earned income limit: Roth contributions cannot exceed the student's earnings from employment (including self-employment). 

Most students probably need the money they earn in the summer for their education expenses. Without a little help from their families few students are able to take advantage of this tax planning opportunity.  Once they are established in their careers, many of these young people are going to find that their incomes exceed the earnings thresholds under which contributions to Roth accounts are allowed, so now is the time to start thinking about this.

- Mark S Gleason CPA
  www.lakes-cpa.com