Ben Popken, NBC News, December 29, 2021
As you wind down the year, cleaning out drawers and emptying wallets of receipts, don’t forget to report to the IRS any income you brought in from drug deals, bribes, stolen goods, prostitution or other illegal activity.
According to IRS publication 17, the Internal Revenue Service wants taxpayers to include on their forms “income from illegal activities, such as money from dealing illegal drugs.” Make sure you put that on “Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment activity,” the IRS wrote.
The agency also requests that “if you steal property, you must report its fair market value,” but only if you don’t “return it to its rightful owner in the same year.”
The somewhat obscure provisions went viral this week after a popular finance-meme social media account and daily newsletter author pointed them out.
Humorous as they appear on their face, the statutes are law and have been on the books for years. Prohibition-era gangster Al Capone was indicted on tax evasion after prosecutors alleged that his stated income didn’t match his lavish lifestyle.
In practice, it’s rare for those who break the law to then turn around and dutifully log their ill-gotten gains for the government to review. But there are exceptions.
People who are convicted or expected to be convicted of embezzlement will report the income to avoid getting prosecuted for tax evasion on the proceeds, Stephen Moskowitz, a San Francisco tax attorney, told NBC News.
If a person declares and pays taxes on their illegal activities, then they also get to deduct the cost of any restitution as well, he said.
There are people who file tax returns and list as their occupation criminal activities like ‘prostitute.’