Remember to report income from stolen goods and illegal activity, according to IRS

At the end of the year, as you clean out drawers and empty wallets of receipts, be sure to report to the IRS any income you have made from drug trafficking, bribes, property. stolen, prostitution or other illegal activities.

According to IRS Publication 17, the Internal Revenue Service wants taxpayers to include on their forms “income from illegal activities, such as money from illegal drug trafficking.” Be sure to put this on “Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if your self-employment activity,” the IRS wrote.

The agency also asks that “if you steal property you must declare its fair market value”, but only if you do not “return it to its rightful owner in the same year”.

The somewhat obscure provisions went viral this week after a popular social media account and daily newsletter author reported them.

The IRS did not immediately return a request for comment from NBC News.

As humorous as they seem at first glance, the statutes are law and have been in effect for years. Prohibition-era gangster Al Capone has been charged with tax evasion after prosecutors alleged his reported income did not match his lavish lifestyle.

“All income, regardless of source, is taxable income, unless it is excluded by an act of Congress,” said Gary Schroeder, a Maryland-based tax preparer. “If you get $ 500 to kill your neighbor’s annoying rooster, or find $ 1 on the street, or hijack your employer, that’s all taxable income, plus your paycheck for returning burgers to McDonald’s. “

In practice, it is rare for those who break the law to turn around and conscientiously record their ill-gotten gains for government review. But there are exceptions.

Those convicted or likely to be convicted of embezzlement will report the income to avoid prosecution for tax evasion on the product, Stephen Moskowitz, a San Francisco tax lawyer, told NBC News.

If a person declares and pays taxes on their illegal activities, they can also deduct the cost of any restitution, he said.

Income from activities that may be legal at the state level, such as the production of marijuana, but illegal at the federal level is also disclosed in this manner, he said.

“This law exists. It’s a source of income, ”Moskowitz said.

“Congress demands that you report all of your income, whether legitimate or not,” said David Cay Johnston, an investigative journalist specializing in tax code matters. “There are people who file income tax returns and list criminal activities such as ‘prostitute’ as a profession.

There are people who file income tax returns and list criminal activity such as “prostitute” as an activity.

David cay johnston

Since tax returns are confidential and the IRS cannot share information unless law enforcement has a record and obtains a court order to access a taxpayer’s records , this is less risky than it seems.

In 2020, there were 324 convictions for tax evasion, according to the United States Sentencing Commission, down from 595 in 2016, a drop of 45%.

“The ‘tax gap’ – the difference between taxes owed and taxes collected – runs into the hundreds of billions of dollars a year,” Schroeder said.

“While part of this gap is the unreported profit from illicit drug sales, the gap also includes people who ‘skim’ by not reporting part or all of their income that is paid in foreign currency,” did he declare.

In 2019, the IRS added a question to forms asking taxpayers to report whether they had made any cryptocurrency transactions. In 2020, the IRS moved it to the top of Form 1040. Last year, the agency said it seized $ 3.5 billion in cryptocurrency assets.

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