From time to time, I check to see if anyone's doing an analysis of the volume of unreported income to get an idea of how large our underground economy is. I'm not interested in capturing information, though the federal government obviously is, as much as trying to get a handle on the extent to which the "real" economy, as opposed the the illusion Wall Street thrives on, is keeping people housed and fed.
I've not had much success. One estimate from about ten years ago suggested that the underground is about a third as large as the GDP. Some fellow in Israel is estimating that it's about 22% of their GDP currently.
On the other hand, the phrase "unreported income" opened a virtual Pandora's Box of interesting stories from the political to the international to bottled water hucksters on the street of Las Vegas.
Follow below the fold for a sample.
That Charles Rangel, Congressman from New York, has had some memory problems when listing his income has been somewhat covered here. For another take, HipHopWired.com
Chairman of the House and Ways Committee, Charles Rangel, has some serious explaining to do. This time the embattled congressman finds himself in more hot water after a corrected financial report shows that he conveniently forgot to report more than $500,000 in assets to the House of Representatives. His amended report magically reveals new assets worth between $647,000 and $1.38 million. The missing assets from the original report include a congressional Federal Credit Union IRA worth between $250,000 and $500,000 along with four mutual funds worth between $365,000 and $750,000. Also forgotten was his stock with Pepsi Co and Yum! Brands worth between $16,000 and $65,000.
and asks how it's possible to forget a million bucks. Whatever the answer, one hopes that he didn't forget to report the income to the IRS. Because, the IRS is on the cusp of launching a new enforcement task force to retrieve funds that are owed. As Forbes reports,
Clock Is Ticking For Secret Offshore Account Holders
Ashlea Ebeling, 09.15.09, 06:00 PM EDT
Taxpayers and lawyers scramble as Sept. 23 disclosure deadline looms.
Taxpayers with foreign bank and investment accounts they haven't reported to the U.S. government have a decision to make this week: whether to fess up to their accounts as part of a voluntary disclosure program that ends Sept.
23.
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Failure to file an annual form with the U.S. Treasury--a form called an FBAR--reporting an interest in a foreign account worth $10,000 or more is a criminal offense. It's also punishable by a civil penalty of up to 50% of the account's value, for each year the form goes unfiled. But under the voluntary deal, taxpayers will pay a maximum of 20% of the account's highest value over the last six years as an FBAR civil penalty. They must also pay six years of back taxes owed on any unreported income from the accounts and six years of accuracy or delinquency penalties related to that unpaid tax.
A taxpayer with an unreported account that at its height in 2003 was worth $1 million could pay $386,000 to come clean under the program, versus $2.3 million if the taxpayer doesn't come forward and the IRS discovers the account, according to a 52-question Q&A page about the program on the IRS Web site.
Ouch. You really have to wonder about some people's smarts. Jim Thorpe, the golfer, for example, filed time extensions and then didn't follow through. Guess he couldn't recall,
From 2002 to 2004, Thorpe earned more than $5 million, the plea agreement said. And though he filed time extensions with the IRS to file his personal and corporate income tax returns, he did not make any payments for personal income taxes with the extensions, the court document said.
The amount of Thorpe's unreported income for the three years is about $5.3 million, with a total tax loss at about $2 million, the plea agreement said.
that he had a similar problem back in 1994.
This doesn't seem to be a one-time effort by the IRS. A global high wealth industry office sounds serious.
In the short-term, the unit will provide much needed assistance to an estimated 10,000 cases related to the investigation of Swiss-banking giant UBS. This includes details of the 4,450 taxpayers UBS will provide to the IRS, plus the thousands of taxpayers anticipated to participate in the IRS’s offshore account voluntary disclosure initiative. U.S. taxpayers with undisclosed accounts in foreign banks, such as UBS, have just until September 23 to make a voluntary disclosure of their offshore accounts to the IRS, or risk facing increased monetary penalties and potential criminal prosecution.
That's our money they've been sequestering overseas. And, in my book that's a much bigger problem than the fraudsters who take people's money and spend it on themselves. At least that money's circulating through the economy.
Money manager operated like Madoff
By Dan Horn • dhorn@enquirer.com • September 3, 2009
William Appleton promised clients for years that his Cincinnati investment firm would generate big returns if they trusted him to manage their money.
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He told them he was an experienced financial manager and said he'd even written a book entitled "Mistakes Retirees Make with Their Finances."
Prosecutors now say the biggest mistake his clients made was trusting him.
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Court records show that 13 victims, most of them in southern Ohio, accounted for about $5 million of the money Appleton stole. Another $1.2 million is owed to the IRS for taxes on unreported income.
Federal prosecutors say Appleton promised to invest 98 percent of the money in financial markets but instead used much of it to cover his personal living expenses. He also used the money of new investors to pay off older investors who closed their accounts with him.
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Appleton pleaded guilty to mail fraud and tax evasion earlier this year in U.S. District Court in Dayton. Judge Thomas Rose sentenced Appleton to eight years and ordered him to pay $6.2 million in restitution to his former clients and the IRS.
Small potatoes compared to Bank of America's shenanigans. Some judge thinks so too.
Putting BofA's Merrill Acquisition on Trial
In rejecting Bank of America's deal with the SEC, a federal judge has challenged the government and the bank. Is the Merrill takeover in question?
By Dean Foust
updated 4:00 p.m. ET, Tues., Sept . 15, 2009
In the corporate world it can be messy negotiating a merger. For Bank of America, it appears the backroom drama behind its deal for Merrill Lynch is going to be aired in public.
The Sept. 14 decision by a federal judge to reject the $33 million fine Bank of America (BAC) agreed to pay to settle government charges that it withheld material information ahead of the shareholders' vote on the deal was a major setback for the Charlotte-based bank. While BofA's management had hoped the settlement with the Securities & Exchange Commission would help end the controversy over the Merrill acquisition, the bank now faces two equally bad outcomes.
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On Aug. 10, Rakoff refused to approve the settlement. He further demanded that the SEC provide more details as to whether BofA executives knew about the looming losses and bonus payouts at Merrill -- and if so, who made the decision not to disclose this information to shareholders ahead of the December vote on the deal. Rakoff conceded that settlements like this were often in the best interest of all parties, sparing them the cost and distractions of litigation. But in his latest ruling, the judge said the proposed $33 million settlement "suggests a rather cynical relationship between the parties: The SEC gets to claim that it is exposing wrongdoing on the part of Bank of America in a high-profile merger; the bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense not only of the shareholders, but also of the truth."
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With the judge refusing to rubber-stamp the settlement, the SEC may have no other choice but to deepen its investigation into why BofA didn't disclose the $3.6 billion in bonuses Merrill was preparing to pay its executives -- as well as its failure to alert shareholders to the ballooning losses at Merrill. According to prosecutors in New York, who are conducting a separate probe, Merrill executives privately raised their estimates of pretax losses for the fourth quarter, from $9 billion to $14 billion, in the days before the Dec. 5, 2008, shareholder vote -- a change that wasn't disclosed to shareholders.
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But bringing charges against top BofA executives could trigger a messy legal battle at a time when the Obama Administration is trying to stabilize the banking system and coax bankers to provide the lending necessary to jump-start the economy. Digging deeper into the drama of who knew what and when at Bank of America could raise uncomfortable questions -- not just for BofA, but for the government itself. Already, Bank of America CEO Ken Lewis has claimed that then-Treasury Secretary Henry Paulson and other key Bush Administration officials not only pressured the bank not to disclose Merrill's growing problems but to complete the Merrill deal for fear that if BofA backed out, it could further destabilize the financial markets.
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Oh, dear, the financial markets might be destabilized! Why exactly is it that people who are into risky business are always looking for stability?
Meanwhile, down on the Vegas strip, people are coping:
Exhibit one:
The ‘water bottle hustle’ is illegal because the City of Las Vegas will not issue a permit to sell water to tourist out of rolling ice chests, which were just a nuisance of few years ago, but have now exploded into a massive blue-wheeled-ice-chest hoard of the unemployed moving through the 10’s of 1,000’s of tourists who take to walking the Strip each day and night.
Speaking with the man who had his ice chest, he related to me how the evening before police had arrested his wife and about a dozen others on the illegal solicitation of bottled water.
He said, "There was a time a few years ago that I could make an easy $400 a night, now it is down to about $250, that’s why I go to the Strip Monday through Thursday, instead of the weekends, because there is less competition."
Exhibit Two:
One of the other new 'hustle' explosions on the Strip is the character-photo-solicitation.
On Friday night, on the west side of the Strip in front of the Bellagio and Caesars Palace I found, Batman, the Joker, Spiderman, the Blues Brothers, and Zorro. They work the crowds to get photos of themselves with the tourist who are walking by and focus on families with children.
This is borderline solicitation but those who do it say that people are giving them donations. Recently, a woman who sings on the Strip was picked up by Metro police and arrested for solicitation, but it was thrown out of court.
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The main reason of the illegalities is no taxation. These people do not collect the 8% tax that is required by city and state laws.
There are some legal activities that take place on city owned sidewalks in front of some of the casino’s. Those are centered on escort services. Hispanic ‘card snappers’ line up mostly in front of the Imperial Palace, Harrah's, the Flamingo, Paris, and portions of Caesars Palace.
Exhibit Three:
The final hustle is the ‘strip club/limo hustle’ that takes place inside and outside the casinos’.
This is the biggest and most illusive of all the hustles in Vegas. Both women and men go out each night searching for groups of men, preferably bachelor party attendees, and work their hustle to get them into a limo, then drive them to a targeted strip club where the driver is paid anywhere from $40 to $100 a head to drop these groups of men at the strip club VIP back-doors.
This is big business, and technically illegal solicitation. But because the drivers enlist the help of hustlers, they are able to keep themselves and their license out of trouble.
This hustle works best when women do the work for driver who will split the money they make from the strip club drops.
It is illegal for cab drivers to direct strip club patrons to a particular strip club. They can only take them where their riders ask them to. But they routinely collect the same under-the-table spiff that is offered by the clubs.
The issue for city officials is that it is unreported income and not taxed, and of course no one offers up the spiff on their year-end taxes to the IRS.
I wish I knew how to embed some of the images. If you go to the site, you can vote them up.
Ah, yes, Pandora's Box. That's in the conclusion to the story of the BofA judge.
By forcing the SEC's hand, Judge Rakoff may believe he is simply acting in the best interests of the public -- taxpayers and shareholders alike. That may be true. But the court may have opened a Pandora's box of problems for both the government and the nation's largest bank.