The American tax system is opaque by design. Tax companies like TurboTax and H&R Block spend millions of dollars lobbying to prevent a world with free, easy-to-understand tax filing because, otherwise, they’d be out of business.
But that’s a story for another day.
The process of filing one’s taxes can feel daunting without the help of a professional, and that goes for even the criminals among us. Luckily, the IRS provides plenty of guidance on how to report one’s illegal income.
That’s right, the Internal Revenue Service requires you to report income from your various illegal activities, lest you want to end up like one Al Capone, who was famously busted for tax evasion in 1931.
Reporting Your Illegal Income to the IRS
According to the IRS site, reporting your income from stolen property and other illegal activities falls under “Other Income.” The agency states:
Stolen property. If you steal property, you must report its fair market value in your income in the year you steal it unless you return it to its rightful owner in the same year.
If you’re stealing cars and you suddenly get a conscience about it, just make sure you do it before January 1 of the following year; otherwise, things are going to get a bit dicey at tax time.
As for any other types of illegal activities, that income – such as money from dealing illegal drugs – must be included in your income on Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment activity.
Just like any other independent contractor, the IRS would simply like to know what you’re bringing in so you can be properly taxed. It doesn’t matter whether you’re driving a car for Uber or you’re a contract killer; taxes all look the same to the government.
You Need to Report Bribes as Income, Too
This one is for all the politicians out there who are no doubt entirely transparent about their incomes. If you’re receiving illegal bribes and kickbacks, you not only need to report it as income, but these are nondeductible expenses as well.
However, bribes are excluded as deductions only if you are actively bribing a government official in the United States. If you’re paying bribes to an official of a foreign government to curry favor in some form, this is technically deductible as long as it doesn’t violate the Foreign Corrupt Practices Act, which prohibits businesses from bribing foreign government officials to benefit their own interests. So as long as your bribes have an altruistic intent – like all good bribes, of course – you should be good.
Will You Go to Prison for Reporting Illegal Income?
While you do have to report your illegal income, you don’t have to necessarily give its precise source thanks to your ironclad Fifth Amendment privileges. That means you don’t have to itemize all of your illegal income from drug dealing or arms trafficking. Just report the income in the general sense and you should be able to steer clear of the wrath of the IRS and those pesky tax evasion charges.
Additionally, tax returns are confidential. The IRS can’t share suspicious information with authorities unless law enforcement has a court order of its own. So you’re probably safe on that front.
