Tax Guru-Ker$tetter Letter
Sunday, December 08, 2002
We've all heard the term "money laundering" in gangster shows. However, contrary to popular belief, that doesn't mean cleaning off the cocaine residue that allegedly is on much of the currency in this country. Laundering means to hide the illegal source of money and make it appear to be from a legitimate source. As the old cliche goes when trying to catch crooks, "follow the money." As we've seen in countless movies about drug lords, they deal with suitcases full of cash and need ways to make sure nobody knows where it came from.
For a long time, private citizens have been deputized in the war on drugs by being required to file Form 8300 with IRS in Detroit within 15 days to report any business transactions where they received $10,000 or more in cash or cash equivalents. Of course the crooks do everything they can to avoid having their payments reported. They try to break up transactions into multiple payments, each of less than $10,000. However, related payments are supposed to be combined and reported on an 8300 if they total more than $10,000.
A few weeks ago on the Sopranos show, Carmela was going around to several different stockbrokers and investing about $9,000 of cash she had taken from Tony's stash with each broker in order to avoid the 8300 reporting.
Each time the form is revised, the list of types of cash equivalents grows. It currently includes U.S. currency, Foreign currency, Cashier�s checks, Money orders, Bank drafts and Traveler�s checks. With the cost of postage stamps increasing, I wouldn't be surprised to see them listed soon. We use Priority Mail a lot and are constantly buying $3.85 stamps.
The penalty for not filing Form 8300 when you are required to can be the full amount of the cash involved. I can still recall a case in Silicon Valley shortly before we left there ten years ago. IRS checked the books of several auto dealerships and found where several expensive vehicles had been purchased for cash and no 8300s had been filed. IRS fined the dealerships millions of dollars, the full amount of unreported cash.
When I was presenting my real estate taxation seminars around Arkansas, I included a section on this reporting requirement because it is a well known trick for drug dealers to launder money through real estate. We even heard some first hand stories from some of the Realtors in attendance of being involved in investigations of just such a thing.
What triggered this longer than expected discussion of money laundering was this recent story about drug dealers laundering money through life insurance policies. Of course, I'm sure we are hearing about this at least a few years after it started and the crooks are already on to something new by now.