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July 31, 2008
The John Edwards cover-up and the IRS (updated)
John Edwards allegedly has been funneling $15,000 a month in hush money/child support to his mistress Rielle Hunter. Has he paid a gift tax and avoided money laundering pitfalls? The mother of his love child reportedly received the funds through an intermediary named Andrew Young, who claims to be the child's father in behalf of his friend Edwards. Nearly everyone (but people who rely solely on the MSM for news) knows this courtesy of the National Enquirer,
AT editor Thomas Lifson raised the question of tax liabilities for these transactions, and the possibility of money laundering regulations coming into play with these transfers.
From the IRS Gift Tax FAQ web page:
From IRS Publication 950"
If we assume Edwards is paying Hunter $15k/mo and it is not court-ordered child support, then the gift tax issue seems to hinge on whether he is receiving "full consideration in return". I have to believe determination of this is subject to IRS review.
If it is a gift, then he is required to file a gift tax return and pay gift tax, perhaps unless Hunter agreed to pay the gift tax. If it is not a gift and not court-ordered child support, then she is required to report it as income and pay tax on it.
18 USC §1956(a) says (via Wikipedia);
I think it is reasonable to assume that this transfer, if it exists, is not court-ordered. Otherwise, there is little reason for Edwards to run from the Enquirer when they confronted him.. Also, as reported in the article, the three elements of money laundering appear present; placement, layering, and integration.
So, my take on all this is that tax is owed on the transfer of money regardless of whether or not it is ruled a gift. Failure to pay required tax is an unlawful activity. Edwards, a lawyer, must know all of this. It is hard to believe he would not be sure to obey all regulations and tax liabilities. On the other hand, former prosecutor Eliot Spitzer apparently ran afoul of money laundering charges. These things get complicated for people trying to keep a secret.
Is the IRS is completely unaware of this transfer because of the MSM blackout? If the blackout crumbles (as it may be doing) will the IRS check to see that taxes have been paid? Should Edwards, Hunter, and any intermediaries (Andrew Young?) be investigated for possible tax evasion, money laundering, and conspiracy to commit same? The IRS has a policy of prosecuting high profile tax evaders. A former US Senator and Vice Presidential nominee certainly qualifies as high profile.
Shouldn't these questions be part of the public conversation?
James Baker is not the former cabinet member of the same name.
Update -- Brett Wolf writes:
Tax evasion alone is not a "specified unlawful activity" that can trigger a money laundering prosecution under Title 18 US Code, Section 1956. Congress intentionally left tax evasion out of the mix as it wanted to focus on funds that were generated by illicit activity. Of course, tax evasion is one of the "intents" that can support a 1956 prosecution, but only if the untaxed money is the proceeds of another crime, such as drug trafficking or wire fraud. Even if he did make secrect payments, the Edwards situation is nothing like that of Spitzer, who allegedly made his secret payments to an international prostitution and money laundering ring. In that case, the structured payments may have contributed to a money laundering conspiracy. Just a thought...