Friday, July 10, 2009

Taxing Illegal Income

Every so often, I hear someone complain that as much as taxes take out of their income, they would be better off being a criminal. At least then they could keep whatever they earn, right? Well you might not want to quit your day job.

Over the last several years, I have heard increasing reports of the government charging criminals with tax evasion. Ridiculous though it sounds, according to the Internal Revenue Code, income derived from any source, including illegally earned income, is subject to income tax. And often the IRS only becomes aware of the illegal income after an arrest is made.

It is rather strange to think of a criminal diligently reporting the proceeds of their illegal activities, but this is what the IRS requires.

Most people know that infamous mobster, Al Capone, was arrested and imprisoned for tax evasion. You might assume this was an extreme case, and the government just needed a way to take out kingpin. However, charging those arrested and or convicted of crimes with tax evasion is gaining in popularity.

Specifically targeted are:

  • Telemarketing Fraud
  • Financial Institution Fraud
  • Insurance Fraud
  • Organized Crime
  • Illegal Gaming
Why the emphasis on pursuing illegal income taxes? Well, the IRS is in serious need of funds, and illegal activities produce a lot of cash flow. The IRS states “Tax cases involving legally earned income are and continue to be a priority for IRS Criminal Investigation, followed by money laundering and illegal source income cases.”

You see? No one escapes the federal tax system.

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