For Federal Crimes, where does the money collected from penalties go?
"The SFGate had an article on this a few years ago: http://www.sfgate.com/business/networth/article/When-government-fines-companies-who-gets-cash-3189724.php ""Civil penalties, often referred to as fines, usually go to the U.S. Treasury or victims."" Short answer in the case you references it would be the US Treasury. In cases where there is a harmed party then they would get something to account for their loss. But it can get complicated depending on the crime."
Your friend would have only been liable for a tax penalty if he withdrew more 529 money than he reported for qualified expenses.   That said, if he took the distribution in his name, it triggers a 1099-Q report to the IRS in his name rather than his beneficiaries.  This will likely be flagged by the IRS, since it looks like he withdrew the money, but didn't pay taxes and penalties on it, not the beneficiary.  In other words, qualified education expenses only apply to the beneficiary, not the plan owner/contributor.  In this case, the IRS would request additional documentation to show that the expenses were indeed qualified.   To avoid this hassle, it's easiest to make sure the distribution is payed directly to the beneficiary rather than yourself.  Once he or she has the check, then have them sign the check over to you or transfer it into your account.  Otherwise you trigger an IRS 1099-Q in your name rather than your beneficiary. The IRS demands and expects to be paid tax on all taxable activity, including illegal activity.  If they expect drug dealers, hit men, and smugglers to pay tax, they expect you to pay tax on your basement apartment. The flip side of this is that the IRS keeps reported tax activities confidential.  They only share what is required (for example, your taxable income with your state).  You can read the details in their disclosure laws.   Deductions will work just as they would if your apartment was perfectly legal.  In the eyes of the IRS, whether your income is legal or not is none of their business.  They care only about whether it is being taxed appropriately. They will not share any information with your zoning authority without a court order. In practice the IRS seems to apply the late payment penalty when they issue a written paper notice.  Those notices typically have a pay-by date where no additional penalty applies.  The IRS will often waive penalties, but not interest or tax due, if the taxpayer presses the issue. Once you declare the amount, the CBP officials will ask you the source and purpose of funds. You must be able to demonstrate that the source of funds is legitimate and not the proceeds of crime and it is not for the purposes of financing terrorism. Once they have determined that the source and purpose is legitimate, they will take you to a private room where two officers will count and validate the amount (as it is a large amount); and then return the currency to you. For nominal amounts they count it at the CBP officer's inspection desk. Once they have done that, you are free to go on your way. The rule (for the US) is any currency or monetary instrument that is above the equivalent of 10,000 USD. So this will also apply if you are carrying a combination of GBP, EUR and USD that totals to more than $10,000. But it's not tax evasion. They are trying to avoid the US's double dipping on foreign income -- an unjust tax if there ever was one. If the money is made overseas then the US government shouldn't have any right to it. I mean, they didn't build any of that infrastructure. That's the way it works in most countries. Their fair share is 0. "Yes, the penalty is the tax you pay on it again when you withdraw the money. The withdrawal of the excess contribution is taxed as your wages (but no penalty). Excess contribution cannot be added to the basis or considered ""after-tax"" (hence the double taxation). Note that allowing you to keep the excess contribution in the plan may lead to disqualifying the plan, so it is likely that the plan administrator will force you to remove the excess contribution if they become aware of it. Otherwise you may end up forcing early 401(k) withdrawal on all of your co-workers. More on this IRS web page. And this one." Actually banks aren't required to (and don't) report on 8300 because they already report $10k+ cash transactions to FinCEN as a Currency Transaction Report (CTR), which is substantively similar; see the first item under Exceptions in the second column of page 3 of the actual form. Yes, 8300 is for businesses, that's why the form title is '... Received In A Trade Or Business'.  You did not receive the money as part of a trade or business, and it's not taxable income to you, so you aren't required to report receiving it. Your tenses are unclear, but assuming you haven't deposited yet, when you do the bank will confirm your identity and file their CTR. It is extremely unlikely the government will investigate you for a single transaction close to $10k -- they're after whales and killer sharks, not minnows (metaphorically) -- but if they do, when they do, you simply explain where the money came from. The IRS abuses were with respect to people (mostly small businesses) that made numerous cash deposits slightly under $10k, which can be (but in the abuse cases actually was not) an attempt to avoid reporting, which is called 'structuring'. As long as you cooperate with the bank's required reporting and don't avoid it, you are fine. Well, that's probably not even all of it. If that stranger did his taxes properly, then he already paid about a third of it to the government because wherever he got it from it was income for him and thus it must have been taxed. Now, the remainder is in your hands and yes, according to US law it is now your income and so now you too, must pay about a third of it to the government, and yes you are supposed to explain where it came from. Be careful giving it to somebody else or it'll be taxed yet again. disclaimer: I am not a US citizen "I'm working on similar problem space. There seems to be some working ambiguity in this space - most focus seems to be on more complex cases of income like Dividends and Capital Gains.  The US seems to take a position of ""where the work was performed"" not ""where the work was paid"" for purposes of the FEIE. See this link. The Foreign Tax Credit(FTC) is applied (regardless of FEIE) based on taxes paid in the other Country. In the event you take the FEIE, you need to exclude that from the income possible to claim on the FTC. i.e. (TOTAL WAGES(X) - Excluded Income) There is a weird caveat on TOTAL WAGES(X) that says you can only apply the FTC to foreign-sourced income which means that potentially we are liable for the on-US-soil income at crazy rates.  See this link.. Upon which... there is probably not a good answer short of writing your congressperson." I called the IRS and they stated it may take up to 45 days to withdraw the cash, but the proceeds would be applied on the date of the filing (Or when the amount was stated to be debited). Federal and State taxes differ in timelines but as long as deadlines are met and proof exists IRS does not penalize. &gt;Im suggesting if they break the law they go to jail, just like every one else  Actually above you were complaining about the monetary penalties, and said nothing about criminal penalties. Which is it? Hundreds of millions of dollars is hardly light fines.  As to going to jail, it depends on the law. Speeding breaks the law, yet it is not often a jailable offense. If *individuals* broke laws that result in jail time, they will likely be prosecuted and sent to jail. [The Justice Department and New York County Attorney General’s Office, which together have handled the high-profile cases that Mazur criticized, said they will always bring criminal charges where evidence permits.](http://blogs.reuters.com/financial-regulatory-forum/2012/06/20/record-setting-bank-forfeiture-at-ing-ignites-debate-over-lack-of-banker-prosecutions/) Had a professor in college for one the business classes. He would teach inmates finance. One class he had a student that was in for some sort of fraud/money laundering. The professor was not sure how much the student had taken but he did ask if it was wroth it. The inmate said yes, explained how long his sentence is/was (it was less then 10 years) and that they only found part of the money. The difference is whether or not you have a contract that stipulates the payment plan, interest, and late payment penalties. If you have one then the IRS treats the transaction as a load/loan servicing. If not the IRS sees the money transfer as a gift. Are you suggesting when they break a law involving a small portion of their total business they pay fines involving all portions of their business?  I'm suggesting when they break a law, they pay fines related to the crime comitted. So relating how much their fine was on a tiny portion of their business should not be compared to total quarterly profits, unless those profits were related to the crime. Similar punishment methods to most crimes individuals commit. Just so you know, the SEC doesn't have criminal authority, they do civil fines.  It's the Department of Justice that sends white collar criminals to jail.  If you'd like to see what they've been up to, [here's a little info from the FBI](http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011)  Also, I could be wrong but I think the government mass settled the claims coming from the financial collapse.     *edit: you don't get to keep the money you made from your illegal activity.  That would just be stupid.  The fines are on top of giving the money back*  *edit 2: remember [these girls?](http://www.youtube.com/watch?v=ihLBCbNIDbI&amp;feature=share).  They didn't get to keep the money they stole.  It's no different in white collar crime.*