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The Berman Buzz

Tax Tip Tuesday: The IRS Wants You to Self-Report Illicit Income


money and handcuffs

Did you steal a luxury car in 2023? Loot a convenience store? Maybe accept a bribe? Win $10,000 in a Super Bowl square selection or $50,000 in an NCAA Bracket? If any of these scenarios apply, the IRS requires you to self-report the income on your tax return. Remember, income is taxable regardless of its source, except for that mohair cardigan your mother-in-law gifted you for your birthday.


The  IRS Publication 525: Taxable and Nontaxable Income advises sticky-fingered taxpayers to accurately report stolen property at Fair Market Value in their income unless returned to its rightful owner within the same year. As for illegal drug money or receiving bribes, Uncle Sam needs you to include those profits on your 1040 form. Furthermore, do not forget to document any kickbacks and other illicit activities received while doing business. 


The IRS stated it was unaware of any instance where it publicly published statistics on how many taxpayers reported income from crimes. Additionally, federal legislation prevents the IRS from voluntarily disclosing this information to law enforcement without a court order.


Not reporting stolen income can result in possible charges. For example, the notorious gangster Al Capone, also known as Scarface, went to jail in the 1930s for tax evasion and prohibition. Authorities indicted him for not paying taxes on the income earned from his mob activities. He spent seven years in federal prison. More recently, the IRS reported 401 tax fraud offenders in 2022. That is one number you do not want to be in.


Remember, this puzzling IRS law is not a belated April Fool’s joke, and all income, whether legally or illegally obtained, is taxable.

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