Suppose that a computer consultant Mr. X knows cryptography so well that his clients are willing to pay him $100/hr. Mr. X could conspire with his client that he receives only $40/hr in taxable income, and the rest he gets in form of digital cash.
If X lives sufficiently modestly, the IRS will be having hard times
The paying company has a tax return of it's own, which will be used to show how much was paid (actually or constructively) to Mr X. The IRS doesn't usually get it's indictments from circumstantial evidence. It gets them from the pissed off underlings who see Joe Cool Mr X getting away with shit they can't. How many secretaries, payroll clerks, human-relations staffers, etc, will be seeing the chain of paperwork that is generated by the "arrangement"? They know how normal payroll is handled. Some tiny percentage of these sheep are alert enough to put two and two together.... and it's all downhill from there. Let us recall how the (apparent) (alleged) UNabomber was identified....