Why the IRS Taxes Illegal Income

Video written by Ben Doyle

[mixracial]

Criminal: "I got to make 1.2 million just off a bank robbery"
IRS: "That's cool, but I'm still gonna need to take a cut"

[vividwings]

A retired IRS agent once told me that he had an inquiry about how a sex worker could report her income. They settled on "laundry services", as she did have to wash the sheets after every client.

[dpm]

I actually did ask an accountant this once, for research purposes naturally 😉. From what they told me the IRS does have an obligation to collect income but doesn't have an obligation to report criminal activities, so it is basically like a more sinister version of how an EMT needs to know if you took any illegal substances but isn't required to report what you took. It's a loophole they found to allow them to slap charges on criminals while avoiding violating your constitutional rights, since technically you just need to report the income, though law enforcement can still request your tax documents.

[xargul]

Even the Joker pays his taxes, he is crazy enough to fight Batman but not enough to oppose the IRS

[BINACmini]

I'm so happy H&R block is there to help me pay taxes after H&R block lobbied the government to make it harder for me to do it myself.

[elpatron]

Some jerk: Steals candy from the baby

Some IRS employees: Oh. There's a tax for that.

[DeltaDemon]

I believe I read somewhere that they cannot use the fact that you declared income on your taxes to prosecute you for how you came about that income. So, if you say you got money for killing someone, they can't use that in court to prove that you killed someone.

[nicksurfs]

Got a lawyer friend who insists his clients report their drug dealing income to family court for child support. The people who do aren’t investigated for underreporting income because their income matches their lifestyle and no one really asks where the money comes from so they go on with their lives unbothered. Those who don’t, get investigated and imprisoned. You cannot run from the tax man.

[nazamroth]

I just find it hilarious that if a politician bribes me to do something, most likely from public money, I am supposed to return a significant chunk to the government.

[elektro]

To answer the obvious question...in order to demand that you report income and pay taxes on it while complying with the 5th Amendment prohibition on forcing a citizen to incriminate himself, the IRS will accept something known as a "5th Amendment tax return" which, as I understand it, essentially says "I made $X in income from a source which I am not willing to specify, here is the tax bill I owe on that income." I am not an attorney but my cousin, who is, used to do this in the 1980s for his drug cartel clients.

[MI-wcnk]

the real question is - can it serve as evidence for criminal activities prosecution (federal/state)? can it be summoned/revealed as part of discovery?
If not, it might actually be a good idea ;)

[robertk]

I remember learning about this in school (Accounting). One of the implications that my teacher pointed out was that once the IRS was done siezing someone's assets for all of the tax evasion that's likely to accompany their criminal activities they would have far less money to defend themselves from criminal charges.

[Tyuf_]

"defending themselves in court is technically something they had to do for their business" I cant man, why is that so funny

[hk]

Even here in Germany my professor for taxes (and other subjects) told us that criminals convicted for their illegal business(-es) then (usually) get a follow-up from the Finanzamt (roughly the German IRS equivalent) to get its share of the criminals' gains through taxation.
For example drug traffickers, tax evaders, fraudsters, etc. pp.
Taxation isn't stopped just because the origin of the gains was illegal.

[jpablo]

I had an economics teacher tell me the IRS is the only organization in the world that can pull money out of a naked man's "pockets."

[Starguy]

Since they didn't make it clear enough- you can't deduct most business expenses if you sell cannabis, even if it's legal in your state. You can deduct expenses from most other illegal businesses, as mentioned, but there's a specific rule that you CAN'T deduct expenses from trafficking in controlled substances. Meaning you technically are supposed to pay tax on your entire gross income, which might mean paying more than your entire profit in tax if you have a lot of expenses you aren't allowed to write off.

[mkr_mac]

The IRS as your homepage joke is my favorite you've made in a while!

[fence]

POV: You’ve planned a bank heist for years, assembled a team of the best criminals in the world, and stayed under the radar after the heist.
The IRS: Hello there.

[TheGIGACapitalist]

This makes sense, otherwise profit maximizing firms would prioritize illegal income over legal income so long as the legal fees don't outweigh profit.

Pretty horrific that needs to be done... 🤷‍♂️

[JackClayton]

Income tax was originally, only temporary, to pay for the Great War (I.e., WWI). Also don’t forget, Al Capone wasn’t caught for his many crimes, but for tax evasion.