As just about every American adult knows and is dreading, Monday, April 15, is Tax Day. Each year, taxpayers scrounge together each income statement the government requires and any random receipt that may result in a modest deduction in the amount they’re expected to pay.
The IRS wants taxpayers to know that if you made money from anything illegal last year—stealing, selling illegal drugs, taking bribes—then that’s taxable, too.
Last year, Americans spent 6.5 billion hours doing their taxes, which translates to roughly $260 billion in lost productivity. That’s in addition to the $104 billion they spent in direct costs on the actual tax filing and preparation.
Much of that complexity stems from the amount of deductions and carve-outs the tax law allows, as well as the types of revenue required to be treated as taxable income.
IRS Publication 17 “covers the general rules for filing a federal income tax return.” In its most current edition, the IRS advises, “Income from illegal activities, 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.”
In other words, even if you engage in activity that the federal government is completely opposed to, like selling heroin on the corner, Uncle Sam still expects you to kick up a percentage.
The IRS advisory also includes a section about “stolen property,” which similarly cautions, “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.”
Returning a stolen item won’t prevent you from being prosecuted for theft, so it’s nice to know that the IRS will at least give you a pass on the tax implications.
Ultimately, the IRS guidance perfectly sums up how patently absurd so much of the tax code is. In a separate notice, the agency advises filers to “keep records indefinitely if you do not file a return” or “if you file a fraudulent return.” That’s because if you don’t file or if you file a fraudulent return, then there is no statute of limitations, and the IRS could come after you at any point in the future.
The rule goes back to the days of Prohibition: When authorities could not tie gangster Al Capone to any of his illegal dealings—bootlegging, gambling, murder—they prosecuted and convicted him of tax evasion for failing to report his income.
Let that be a lesson to you reprobates out there: If only Capone had reported his racketeering income and kept his tax returns forever, he may have gotten away with it all.
