Mfcttrf

Hypothetically, A wants to pay B a considerable amount of money.

In order to reduce the paper trail, A pays me the money and I transfer it to B.

To further obscure the paper trail, I declare the payment from A as income for work (non-existent) done by me for A, enter it on my US Income Tax return as taxable income, and pay the resulting tax.

I have submitted a false tax return, but it leads to an increase in tax paid. Is it still a crime?

Edit: No money laundering. A legally possesses the money and has a perfectly legal (and very private) reason to pay it to B.

The primary crime that you have described is called money laundering.

There are also multiple tax related crimes that could be implicated, not all of which require that taxes due by the person charged by reduced. See, e.g., Conspiracy to Defraud the United States (18 U.S.C. § 371); Attempts To Interfere With Administration of Internal Revenue Laws (I.R.C. § 7212); Fraudulent Returns, Statements or Other Documents (I.R.C. § 7207); Identity Theft (18 U.S.C. § 1028(a)(7)), etc.

Did you misreport your income, now? How do you determine that?

You received income from A. You did a service for A. You may have wildly overcharged, (or did you? You had expenses).

IRS is concerned with the Step Doctrine. If doing something in one step is illegal, and you do several steps that have the same effect, then the steps are illegal.

You are assuring us that the single step is legal, so the steps are legal.

Examples.

You're allowed to donate $2800 to a candidate's primary election. You give $2800 to a friend for him to donate to that same candidate. The "step doctrine" says that's the same as you giving $5600, and you are over limits!

You get $1,000,000 cash selling meth. It would be illegal to deposit the whole lump without explaining the source. So you deposit $5000/day (structuring) or buy a car wash and sell washes to phantom customers (laundering).

Here's the exception that proves the rule. Your income is too high to be eligible to contribute to a Roth IRA. You contribute $5000 to a NDIRA (no income limits). You immediately convert the NDIRA to a Roth (Income limits were removed in 2005). That was long thought to be illegal because of the Step Doctrine, but IRS and Congress have stated that it's OK.