Michael Cohen is under investigation for “acts of concealment” and “fraud,” according to prosecutors in the U.S. Attorney’s Office for the Southern District of New York, who reportedly executed search warrants on Cohen seeking documents pertaining to a “hush money” payoff of Stormy Daniels.

What might the feds believe is illegal about that payment?

At first it seemed as though Cohen may have violated campaign-finance laws by providing Daniels $130,000 in exchange for her silence, just weeks before the 2016 election, with regard to her alleged affair with Donald Trump.

Cohen, lawyer and fixer to Trump, says it was actually his money, not Trump’s nor the campaign’s. And since there was “consideration” (Daniels’ silence) for the money, Cohen can’t claim to the IRS that the payment was a “gift.”

That raises the possibility of tax fraud and it starts with one simple question: Were any taxes paid on the alleged hush money?

Cohen should have filed a Form 1099-Misc report with the IRS, alerting everyone of the payment of taxable income of $130,000. Prior to that, Cohen also should have requested and obtained a Federal Employment Identification Number (FEIN) from the IRS for Essential Consultants LLC, because he knew he would be processing payments through this shell company.

Essential Consultants is the same company that was used to receive $62,500 from Elliott Broidy, a top Republican fundraising official who paid Cohen to negotiate a nondisclosure agreement with Broidy’s mistress, a Playboy model. This payment apparently was the first installment of a purported $250,000 commission directed to Cohen for his work, The Wall Street Journal reported. It’s also the second report to emerge of a secret conduit for Cohen to move money in and out in a concealed fashion.

No wonder Cohen’s bank, First Republic, issued a suspicious activity report (SAR) to the Treasury Department’s Financial Crimes Enforcement Center (FinCEN), according to the Journal. SARs are automatically reviewed by special agents of the IRS Criminal Investigation unit. SARs were also the trigger that set off the investigations of Gov. Elliott Spitzer of New York (for paying escorts through a shell company) and ex-Speaker of the House Dennis Hastert (for illegally structuring payments to pay off a victim of sexual abuse).

It is not a crime to conspire to keep an affair secret for money, but conspiracies oftentimes have multiple objectives. Impeding, impairing, and obstructing the IRS from ascertaining the correct amount of tax due with regard to Daniels’ 2016 personal income tax return could be viewed as a criminal conspiracy to defraud the U.S. government, known to prosecutors as a “Klein conspiracy.”

Evidence of a Klein conspiracy must include, in addition to “an agreement,” evidence of overt acts engaged in by one or more conspirators to further the conspiracy. And this is where Cohen has some explaining to do.

“ If the payment to Daniels in exchange for her silence was completely above-board, why didn’t Cohen simply write a check from his personal account to Daniels? ”

If the payment to Daniels in exchange for her silence was completely above-board, why didn’t Cohen simply write a check from his personal account to Daniels? It may be that Cohen did not want anyone, including the IRS, to know about this “hush money” payment. Cohen sought to conceal this payment from all eyes, including government agencies. Evidence of Cohen’s intent include multiple overt acts for the purpose of misleading and concealing the payment of the money from the IRS. The definition of an affirmative act of tax evasion is “any conduct, the likely effect of which would be to mislead or conceal.”

There is evidence already in the public record that Cohen sought to conceal this payment from all eyes—including government agencies. First, he established Essential Consultants for the express purpose of “facilitating” the payment of the hush money in a secretive manner. Second, he provided pseudonyms to everyone involved in the NDA to further conceal their identities (“Peggy Peterson” for Daniels, “David Dennison” for Trump). Third, Cohen sent a wire transfer of $130,000 in the name of Essential Consultants LLC to the client-trust account of Clifford’ lawyer, Keith Davidson, instead of directly to Daniels. Fourth, the payment was styled in the name “Peggy Peterson,” not Daniels (real name, Stephanie Clifford).

Now hopefully Clifford did the right thing by timely reporting her receipt of the $130,000 to the IRS on her 2016 tax return. It is however not likely: A Jan. 10, 2018, letter from Cohen containing Clifford’s signature emphatically denies receipt of any hush money. This letter would likely be viewed by IRS Criminal Investigation, and a federal prosecutor, as a false statement further advancing the conspiracy hatched by Cohen. If she intentionally omitted the payment from her tax returns, then she could be subject to a criminal investigation for tax violations as well.

Daniels may well have paid her proper taxes now that she has made a public admission regarding the receipt of the “hush money,” but the conspiracy in the eyes of prosecutors would have been committed when the NDA was signed, the money paid, and the overt acts designed to conceal and mislead were conducted.

Should any of the conspirators (including possibly Daniels’ former lawyer Davidson, who received the wire transfer into his attorney-client account) choose to cop a plea and flip, for the purpose of cooperating with the government, prosecutors would have another target in mind. It was recently said that Daniels has been contacted and is now cooperating with federal investigators.

“David Dennison” may be in denial about Cohen’s legal danger, but the danger is clear despite all the concealment.