You can do what you want with your money. It's only defacing if you try to add some zeroes and call it a $5,000 bill
http://www.nbcnews.com/id/4489683/n...woman-says-she-thought-million-bill-was-real/
The Federal Reserve "owns" the bills. The possessor owns the value of the bill...not the bill itself. Thus, you can't do whatever you want with the currency that you possess.
Here is the specific code related to this issue:
United States Code
TITLE 18 - CRIMES AND CRIMINAL PROCEDURE
PART I - CRIMES
CHAPTER 17 - COINS AND CURRENCY
§ 333. Mutilation of national bank obligations
“Whoever mutilates, cuts, defaces, disfigures, or perforates, or
unites or cements together, or does any other thing to any bank bill,
draft, note, or other evidence of debt issued by any national banking
association, or Federal Reserve bank, or the Federal Reserve System,
with intent to render such bank bill, draft, note, or other evidence
of debt unfit to be reissued, shall be fined under this title or
imprisoned not more than six months, or both.”
http://bfy.tw/1jro