Use access key #2 to skip to page content.

Not paying taxes

Recs

10

February 21, 2012 – Comments (25)

I don't have the money/skill for this to be a real life situaiton, so I am not being shady, just curious.

 

1) Why would you ever pay gift tax? If you give somebody 5 million dollars, you have to pay gift tax on 2 million of it if you never gave a gift before.  On your tax return why would you ever say you gave it as a gift, instead of just not mentioning it at all?  To my knowledge, the IRS does not check your bank account for large non-cash transactions.  Even if they did can't you say you lost it at a casino?

 

2) Say you are a full time poker player.  You make 50k-200k a year. You don't play online, just cash games at underground poker clubs.  Would the IRS ever audit you?  They have no record of your revenue and expenses. I understand how businesses get audited when they expense too much or don't claim enough, and they are registered with the state or county. If you are making a boat load of money and investing it, and you have to pay taxes on your investments, then I guess they can audit to see where the money came from?  But what if you just pay somebody to buy things under their name for you?  Does the IRS audit you for making big purchases?  SHould this poker player make a shell sole prop business, claim like 40k a year in profit, pay taxes on it, and move on?  Or could he possibly get caught for just saying he is unemployed and owning expensive things?  

 

These are things I never understood and am thinking abou because it is tax season.

25 Comments – Post Your Own

#1) On February 21, 2012 at 7:54 PM, zymok (< 20) wrote:

(1) The banks report large ($10K, IIRC) cash transactions, and it's hard to use large amounts of cash without a bank.

(2) The IRS has some kind of reward program for people who report tax cheats.

(3) No amount of money is worth going to jail. At least, not for me. 

 

Report this comment
#2) On February 21, 2012 at 8:24 PM, awallejr (79.54) wrote:

I thought you were going to do a Peter Schiff argument. But #1 was pretty accurate.  Also the recipient of that large $5 million gift would want you to file a gift tax return otherwise he could be hit with income tax on the money.

Organized Crime members do act along your thoughts.

Report this comment
#3) On February 22, 2012 at 11:18 AM, smartmuffin (< 20) wrote:

Aren't underground poker games already illegal?  I can't imagine how the state would react if you approached them to file for a business license for it...  You might as well be asking if drug dealers pay taxes?

Report this comment
#4) On February 22, 2012 at 11:43 AM, Teacherman1 (41.39) wrote:

 "Or could he possibly get caught for just saying he is unemployed and owning expensive things?  "

Beware of jealous neighbors "snitching". :)

Report this comment
#5) On February 22, 2012 at 12:03 PM, Valyooo (99.39) wrote:

Smartmuffin,

I was obviously referring to getting a business as a shell, not claiming it as an illegal poker game.

Report this comment
#6) On February 22, 2012 at 12:08 PM, ETFsRule (99.94) wrote:

You can find some info on this by searching the 2+2 poker forums. High-stakes poker players are the experts on this stuff.

Any transaction over $10k requires the financial institution to file a CTR. This includes not only bank deposits, but things like currency conversions, electronic payments, etc. Casinos might also be required to file a CTR if you exchange $10k worth of chips at a time (I'm not 100% sure about this).

People have tried to get around this law by using smaller transactions of less than $10k... but this is called structuring, which will likely trigger a SAR, which in turn leads to an extensive audit (and, probably gets your accounts frozen). Then, this happens.

Report this comment
#7) On February 22, 2012 at 1:06 PM, ikkyu2 (99.23) wrote:

Have you ever wondered why Patek Philippe and Jaeger-LeCoultre make tourbillon watches?  I mean, it's crazy to spend all that time, effort, precious metal and jewels on a small object that you wear on your wrist.  Who would pay $1 million for a watch?  You can hardly tell it from a $50,000 watch!

Watches are very small - you can even wear one through the backscatter machine and have a TSA guy hand-wand it or hand inspect it.  And watches can be lost easily.  Whoever has the watch owns it.  Ever try to sell one?  You can turn them into money anytime, anywhere in any big city all over the world, and the folks who do this transaction generally don't report it.

"Why is ikkyu2 posting Swiss watch spam," you're thinking?  "It's got nothing to do with the topic of the post!" 

:)

Report this comment
#8) On February 22, 2012 at 2:32 PM, Valyooo (99.39) wrote:

Can you do the same with gold bars?  You don't pay capital gains on that.  Can you buy a ton of gold without reporting it (you can say it was a gift), and then sell it and record the sale, not pay tax on the sale and claim that as revenue?

As far as CTR's go, everything triggers them EXCEPT personal checks.

Also, I work at a bank.  SARs aren't that serious.  It is only if you make like a  9k deposit, then another 9k the next day.  You can make one for 9500 one day and then like 3 days later do 8700 and you are fine.  Nobody pays attention except your assigned business banker, who does not monitor your account every day.

Also, if you dont play at a casino, only underground clubs, there is no CTR at all obviously.  So I guess as long as you pay for everything in cash, there is no record of anything?

Report this comment
#9) On February 22, 2012 at 3:16 PM, leohaas (31.08) wrote:

Ok, so the solution is underground clubs. Hope you never get into a dispute with the owner or another client, because you might end up with your feet in concrete at the bottom of the East River.

Just pay your fricking taxes like we all do!

Report this comment
#10) On February 22, 2012 at 3:34 PM, ETFsRule (99.94) wrote:

Regarding SAR's: are you sure there isn't an algorithm working behind the scenes to catch people? If you are making $8500 deposits every couple weeks, I'm sure they would notice fairly quickly. That's probably what happened to the guy in the link I posted earlier.

"Also, if you dont play at a casino, only underground clubs, there is no CTR at all obviously.  So I guess as long as you pay for everything in cash, there is no record of anything?"

I guess there is no record of most purchases, except investments and things that you pay property tax on (cars, boats, houses, commercial properties, etc). I'm not sure what other methods they could use to catch people.

Report this comment
#11) On February 22, 2012 at 4:28 PM, Valyooo (99.39) wrote:

Leohaas,

Why are you using the word solution, as if the reason for playing at an underground spot is to avoid taxes, rather than how much easier it is to make money at one of these spots, when you know the owner?  I think you watch too many movies.

No, I don't think there are algorithms.  You just switch the dollar amount, and do it once or twice a week.  The peopel who get caught do it 5-6 times a week.

Report this comment
#12) On February 22, 2012 at 4:35 PM, ikkyu2 (99.23) wrote:

Any exchange of chips for cash in excess of $10K gets reported to the IRS, at least at a US casino.  Of course, no one would ever go to Macau or Monte Carlo to launder money.

What you describe with regard to gold bars is blatantly illegal.  If you buy a gold bar for $500 and sell it later for $1000, you are supposed to report $500 in capital gains to the IRS and pay taxes on it.  If a person doesn't do that, the question is not whether they're in violation of the law - they are - the question is only whether they get away with it.  

(If those transactions occur 30 years apart, can you deduct the loss in value over time due to inflation and currency devaluation?  Nope - IRS doesn't recognize it.  You have to report the full gain, not the inflation-adjusted gain.)

$1 million in gold bars is a little bit heavy, Valyoo.  39 lbs at today's spot, give or take.  You slap that down on the glass case at your local jeweler, it'll probably shatter.  You take that through a backscatter machine, you are not going to be permitted to board your flight to Macau or to Monte Carlo.

You are, on the other hand, allowed to wear your watch. 

Report this comment
#13) On February 22, 2012 at 5:02 PM, Valyooo (99.39) wrote:

You don't pay capital gains on physical gold bars which is why I suggested that over a financial asset).

Report this comment
#14) On February 22, 2012 at 5:04 PM, Valyooo (99.39) wrote:

Oh damn it, you do pay tax on gold capital gains, I was given bad information.

Report this comment
#15) On February 22, 2012 at 5:06 PM, Valyooo (99.39) wrote:

Ok ikkyu, so what do you do?  You spend all of the money on the watch, take it to another city somewhere else in the world, sell the watch in that city, use the proceeds to deposit the money into a foreign bank? And that does not get reported to US government?

You couldn't just stuff your suitcase with cash?

Report this comment
#16) On February 22, 2012 at 5:09 PM, DJDynamicNC (< 20) wrote:

@ikkyu2 - those are some very educational comments. Much appreciated.

Report this comment
#17) On February 22, 2012 at 5:27 PM, Hawmps (< 20) wrote:

You're thinking about it all wrong... forget about poker.  The answer is real estate, and you don't "gift" it.  Buy high, sell low, or quit claim your interest.  If it is your personal residence for at least 2 of the last 5 years you can also carry a loss forward up to a certain dollar amount.

Report this comment
#18) On February 23, 2012 at 10:37 AM, Valyooo (99.39) wrote:

I don't understand some people on this website.  Am I supposed to tell a friend of mine who is very good at poker and plays for a living "hey man, quit your job, you should be claiming losses on real estate instead".

Sorry if it seems like I am being rude but when I ask questions on this site, I feel that people just answer a question i didn't ask more than 50% of the time.  I am talking about underground clubs, in POKER, and so far casinos have been brought up multuiple times, and online sites, and real estate

Report this comment
#19) On February 23, 2012 at 6:27 PM, Hawmps (< 20) wrote:

Val- You said specifically and I quote... "1) Why would you ever pay gift tax? If you give somebody 5 million dollars, you have to pay gift tax on 2 million of it if you never gave a gift before."

Therefore, buy a property worth $6 mil, sell to (whoever you want to "gift" $5 mil to) for $1 mil.  You effectively "gave away" $5 mil.  It really is not that complicated and you weren't taxed, other than conveyance tax, which you can calculate and adust your sale price down to say $995,000 if the conveyance tax is $5,000.

So, thank you very little. 

 

Report this comment
#20) On February 23, 2012 at 7:08 PM, awallejr (79.54) wrote:

Just an aside regarding #19, the recipient of that real estate transaction now has a basis of only $1 million and will get walloped on capital gains once he sells.

And Valy, professional gamblers do exist and they do claim income on their profits.  He will need records however and could get audited.  In that audit it is possible the IRS would like to know were he was playing.  Now I could understand his concern about divulging illegal gambling houses, so if he is sincere and determined to make a living (which is possible for gifted players) then it is time for him to start playing in legal places and keep records.

But to be frank  this thread gave more of an impression on how to avoid paying taxes, not seeking advice on how to make a cash business legitimate.

Report this comment
#21) On February 23, 2012 at 7:43 PM, Hawmps (< 20) wrote:

"Just an aside regarding #19, the recipient of that real estate transaction now has a basis of only $1 million and will get walloped on capital gains once he sells."

Yes, but they do not necessarily have to sell, and they can  1031 into something else to continue to growth net worth which would defer capital gains.  Or, leverage it up to 75% ($4.5mil) of the value to get into another income producing property further growing your net worth.  That $6,000,000 property could have the potential of earning +/- $600,000/yr net income (assuming it is an investment property and not a liability property) on a cost basis of $1,000,000 which I would gladly pay income taxes on.  You also get annual depriciation of a $6,000,000 property reducing your tax liability on your $600,000 income.  Sounds like a good deal to me.

Report this comment
#22) On February 24, 2012 at 12:32 AM, awallejr (79.54) wrote:

K I will defer to accountants, just as I do to plumbers ;p

Report this comment
#23) On February 24, 2012 at 12:47 PM, AWinvestments (95.67) wrote:

It looks like the point of your question is how to dodge some taxes.  As for me, I'm much too pretty for prison, and prefer to not become Bubba's plaything.  So, I'll be paying mine.

However, in the spirit of answering your question, it appears that Ikkuyu2's comment about watches would work for your said hypothetical.  Use xyz amount of cash and purchase the watch overseas.  Then travel and sell it elsewhere, depositing the funds into whatever's clever oversea bank account(s) you'd establish. 

That would then appear to me as not only a tax dodge, but in effect, money laundering too.  Say hi to Bubba for me...

Report this comment
#24) On February 25, 2012 at 10:52 AM, ETFsRule (99.94) wrote:

"Sorry if it seems like I am being rude but when I ask questions on this site, I feel that people just answer a question i didn't ask more than 50% of the time. I am talking about underground clubs, in POKER, and so far casinos have been brought up multuiple times, and online sites, and real estate"

I already answered your question. If you buy something that requires property tax payments, then obviously you will have to account for that money. Otherwise, the answer is no, the IRS does not monitor your purchases - if you use cash, they have no way of knowing what you are spending your money on.

You could get screwed and get hit by a random tax audit, but that is fairly unlikely. Approximately 1% of taxpayers get audited each year and most of those audits are caused by something suspicious on their tax return. Self-employed people are somewhat more likely to get audited.

http://www.getrichslowly.org/blog/2007/02/27/common-red-flags-that-lead-to-irs-audits/

Report this comment
#25) On February 25, 2012 at 12:43 PM, ETFsRule (99.94) wrote:

And, obviously there is the risk of the club getting raided. All it takes is a phone call from one disgruntled player to get the club shut down. Then it would just take 1 guy to mention this hypothetical player to the police... "Oh, I remember him. Good player, usually wins a few hundred per night."

Report this comment

Featured Broker Partners


Advertisement