Following the news lately, it was interesting to find that a few high-profile people have been arrested for money laundering and other illegal financial deeds.

Money laundering refers to using cash to transfer funds from illegal activities to legal entities.

The famous Al Capone was caught for evading income taxes, not for the murders, racketeering and other crimes he was said to have committed.

So how does anyone get paid and not report the income? There are few steps they follow so the money does not go directly into their personal accounts, which might attract attention.

One way is to have income directly deposited into personal numbered accounts in offshore banks or financial houses, where there is no accountability to our income tax laws. That would then require a transfer of funds to their personal accounts to be made "clean" for personal spending.

Instead of choosing to deposit funds from offshore, an evader might set up a series of corporations or other legal entities to create an impression that the recipient is working for many companies and the income would not arouse any suspicion.

High-cost assets such as apartments or condominiums are purchased with their own shell companies. These bogus entities become the nominal owners, with the theory that these transactions avoid a trail back to the individual.

Even though offshore accounts appear to be safe, the money can be subject to forfeiture in the event there is a change in government or banking laws. By breaking up their "haul" in various assets and distributing them in multiple countries, they avoid keeping all of their eggs in one basket.

Among the assets purchased with these illegal funds are jewelry and art treasures, as they are portable enough to be hidden and kept in personal residences here in the U.S.

Many years ago, a famous electronics retailer was caught for embezzlement and other charges. He had accounts in at least 10 countries and real estate scattered in fashionable locations throughout the world.

Subcontractor shell companies

Those who are involved with kickbacks, influence peddling and other illegal activities are quick to set up shell companies and act as subcontractors to receive their payments.

The law indicates that a Form 1099 must be issued at year-end for anyone paying more than $600 in a calendar year to an individual or they will pay a nominal penalty. Even if they pay individuals in excess of this amount, it would take an audit to determine who they were and the amount received.

Because this reporting edict does not apply to corporations, many of the parties involved create their own corporations and the law is averted.

On the other hand, anyone in a trade or business who receives $10,000 or more in cash in a single deal or even in several transactions must report the receipt of the money to the IRS on a Form 8300.

But because all of their other transactions are illegal, there is no concern about meeting the IRS rules on reporting.

Business is defined as any legal structure, including sole proprietorships, corporations, estates and trusts, and is subject to these reporting rules.

This form was authorized after 9/11 as the government became concerned that money laundering was enabling terrorists to fund their activities with these illegal funds.

Observation: The tax code is now nine times longer than the Bible, and not nearly as interesting.
