IRS guidance for thieves, drug dealers, and corrupt officials

https://taxfoundation.org/irs-guidance-thieves-drug-dealers-and-corrupt-officials/

by reese_john • 5 years ago

311 280 5 years ago

taxfoundation.org

imwillofficial• 5 years ago

This was an awesome, informative, and concise read. I’d like more like this.

diplodocusaur• 5 years ago

https://en.wikipedia.org/wiki/Al_Capone#Tax_evasion

lifeisstillgood• 5 years ago

So, Capone could have declared his income, but not its source, paid the tax and it would have been impossible to prove he ordered murders (cos everyone was scared) and / or unconstitutional to use his own declaration to convict him of a criminal act.

I think even Saul from Breaking Bad would have struggled to sell that as a tactic.

bob1029• 5 years ago

At the end of the day, everyone just wants your money. Keep the IRS and your various debtors well-paid and they probably won't have a good reason to ruin your life.

As the saying in the business goes: Only break 1 law at a time.

jandrese4• 5 years ago

Back when Capone was operating there weren't even KYC laws to catch him in. This could have worked.

Or it would have just pressed the feds to go for a real conviction instead. I always thought the tax stuff was a cop out.

BitwiseFool• 5 years ago

If the government wants you imprisoned they'll find a way.

closeparen3• 5 years ago

I wonder. Walter laundered his drug income through his car wash business. He could have rigged the business to be loss making, but then it wouldn’t work to explain the source of his wealth. So presumably it reported a profit and paid taxes on it.

jcpham2• 5 years ago

Speculation on a fictional universe, super

jedberg8• 5 years ago

Yep, if you're a drug dealer and you don't want them to get you on tax evasion, make sure you report it.

Or really any cash income. You don't have to tell them where it came from. You just tell them you got cash. Like when you do a garage sale and want to be legit, you report it in the same place.

cperciva3• 5 years ago

Why are you paying income tax on a garage sale? If you're selling used goods it's extremely unlikely that you're making a profit...

jedberg8• 5 years ago

Technically you've already depreciated the assets to $0, so any money you make is profit, minus the cost of marketing the garage sale.

But I doubt most people claim their garage sale income.

jandrese4• 5 years ago

Because you don't want to go to jail for tax evasion? You don't pay tax on the profit, you pay tax on the sale.

My state also requires that you report everything you bought online from out of state so they can charge sales tax on it. Luckily Amazon has a distribution center in my state that charges sales tax so this is a much shorter list than it used to be.

Naga• 5 years ago

In Canada, when you sell the type of things you usually sell at a garage sale, it triggers the "personal use property" rules. It essentially removes any profit from items as long as they are under $1000, so you're safe selling stuff at a garage sale without tax implications.

yosito• 5 years ago

What's the ballpark threshold for having to report cash you got to the IRS? Proceeds from a garage sale seem like they would be way too low to bother reporting, but I don't know at what point not reporting it would be illegal.

29083011397778• 5 years ago

Would it not be illegal at literally any point? If you make one dollar or a thousand, the IRS wants to know. Maybe you meant at what point they would investigate, but that's dependent on too many factors for me (not an American) for me to even guess at.

Perhaps the easiest way to gauge it is "If I earned this much in tips as a server, would I likely report it?"

toomuchtodo• 5 years ago

All income requires reporting, and cash payments received over $10k (lump sum or multiple payments for a single transaction) must be reported to the IRS on Form 8300.

https://www.irs.gov/businesses/small-businesses-self-employe...

toomanybeersies4• 5 years ago

Rule of thumb (for countries subject to FATCA) is $10k. After that, the tax department (of the local government) starts to look into the source of income.

skot9000• 5 years ago

With this you can get busted for stealing _and_ not paying taxes on the fair market value.

onetimemanytime• 5 years ago

So El Chapo's daughters (US citizens) declare $50 Million, 10 years from now and nothing happens? I doubt it. Bells will ring

If you sold drugs...might as well break tax laws too or you risk your profession:)

yesco• 5 years ago

Might be wrong about this, but I believe how it works in practice is that a tax return just can't be used as evidence in a court of law (for non-tax related reasons). So if the FBI just so happened to obtain these tax returns through some means, then found /different/ evidence, then using that instead would be fine.

https://en.wikipedia.org/wiki/Parallel_construction

croshan• 5 years ago

"The constitutional questions are tricky, but this is good neutral tax policy from the IRS. In a nice touch, income from stolen property is offset with deductibility of many classes of stolen property."

And from the inline link to IRS.gov:

"Theft losses are generally deductible in the year you discover the property was stolen"

That's nice to know, actually.

bzbarsky2• 5 years ago

Theft losses of personal-use property are only deductible if you itemize deductions, and only the amount exceeding 10% of AGI can be deducted. The amount also needs to exclude whatever insurance payments you got, and exclude $100 per theft event.

As a concrete example: say your $1500 laptop gets stolen from your apartment. Your renter's insurance has a $1000 deductible, but covers the rest, so they pay you $500. Your loss for tax purposes is the $1500 - $500 - $100 = $900. You subtract 10% of your AGI from this, and deduct what's left. Which is most likely "nothing", in this case: if you're in a situation where it's making sense to itemize deductions at all, the chance that your AGI is below $9k is fairly low.

But also:

1. Starting in 2018, theft losses of personal-use (as opposed to business-use) property are only deductible "to the extent they’re attributable to a federally declared disaster" (see IRS Publication 584). So in the laptop example it would need to be stolen as part of the general chaos of some sort of federally declared disaster or something. But this does not apply to thefts of "income-producing property" e.g. many stocks or other investments, which brings us to....

2. There are some special rules for Ponzi schemes that I don't know in detail. https://www.irs.gov/publications/p547#en_US_2020_publink1000... has links you can chase if you really want.

calderarrow2• 5 years ago

I love tax law, honest to goodness, and the US's tax code is so fascinating. Regardless of the political/economic reasons why a tax law exists, so many of the rules are so oddly specific that upon reading them I find myself smiling trying to think of the situation that caused a specific law to be made.

When I read these rules, I thought of a potentially amusing tax loophole with regards to the stolen property section:

Stolen property. If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner.

There's another rule[0] on the books that says interest-free loans to friends and family can have tax implications, but if your friend/family _steals_ the money from you and repays it later that year, they could potentially get a short-term, interest-free loan without incurring the tax implications. I'd have to dig into the details to see if this would actually work out, but it's an entertaining thought exercise nonetheless.

[0] https://www.law.cornell.edu/uscode/text/26/7872

heavenlyblue• 5 years ago

Wouldn’t your friends then end up in jail? Or is that the type of crime that is not prosecuted unless “charges are pressed”?

calderarrow2• 5 years ago

If somehow the IRS found out that you and your buddies were doing this elaborate stealing-to-borrow plan, they could slap down tax evasion charges on you since that's definitely breaking the spirit of the law.

But that's a pretty big if ;)

gh-throw2• 5 years ago

I’ve never known cops to investigate theft unless you basically hand them the culprit yourself. You just get your police report and hand it to insurance, if relevant. That’s their whole and entire role in the process. Even where there’s a 99% chance there’s, say, a gas station with video of the thief and their car (=license plate). They don’t even bother to check it out. You really do have to give them everything yourself to get them to maybe do anything.

bonyt• 5 years ago

if your friend/family _steals_ the money from you and repays it later that year, they could potentially get a short-term, interest-free loan without incurring the tax implications

If we want to close this loophole (if it's not closed elsewhere in the code) - I feel like the logical way to handle it would be to treat it as if they stole the imputed interest as well. I don't think § 7872 applies, but this would be in the spirit of that section to balance things out.

So, you'd treat the transaction as though they stole the item plus the interest required to "borrow" it, and then only returned the item without returning the interest. They'd need to report the imputed interest as income (since they stole it!), and you could report it as a loss (since they stole it from you!).

jerf• 5 years ago

So... if hypothetically we ever went to negative interest rates, you could screw up somebody's taxes by stealing some item from them Jan 1st that doesn't depreciate, and returning it to them December 31st. Then report this action to the IRS, and the victim of the theft now owes the government because the negative interest you saved them by taking this asset off their hand and returning it to them December 31st is now income.

gher-shyu3i13• 5 years ago

on the books that says interest-free loans to friends and family can have tax implications,

Simpler loophole: you gift it to them, then they gift it back at the end of the term. Or perhaps sue the IRS because Islam and Judaism prohibit lending money with interest, sounds like a case of discrimination (Christianity prohibits it as well, but basically no one follows nowadays).

Judgmentality• 5 years ago

You can't legally gift money above a certain value though without paying taxes on it. The situation depends a lot here, but if it were legal to just gift everybody money without interest nobody would ever have to deal with inheritance taxes.

frisco• 5 years ago

No basis to sue here: you are perfectly allowed to lend money without interest, you just have to pay gift taxes on it. (If it is really a loan, the gift taxes only apply to the forgone interest. But, keep in mind that if they can’t repay it, they will owe income taxes on the whole amount!)

solatic2• 5 years ago

FWIW, Judaism permits lending money with interest as long as you engage in accepted loopholes and draw up complicated paperwork to call it an investment.

thaumasiotes• 5 years ago

Simpler loophole: you gift it to them, then they gift it back at the end of the term.

This is a terrible "loophole"; it eats into your estate tax allowance.

drdec• 5 years ago

I thought the dodge was going to be, steal something, say a car, return it on 12/31 and then re-steal it 1/1.

HideousKojima2• 5 years ago

Reminds me of how the National Firearms Act registry and tax stamps only apply to law-abiding citizens. People with a criminal record cannot legally own firearms of any sort (let alone NFA items), and forcing them to register them would violate their 5th amendment rights against self-incrimination:

https://en.wikipedia.org/wiki/Haynes_v._United_States

jfrunyon• 5 years ago

People with a criminal record cannot legally own firearms of any sort

That's not true at all... It depends on the crime, it depends on the state, and it depends on the firearm.

rev_d• 5 years ago

I'm not sure I'd describe it as fascinating, so much as abusive.

The really complicated and intricate bits are the web of Tax Treaties, Tax Treaty Protocols, Revenue Procedures, and memos that redefine how a foreign concept maps on to US tax code.

All of this complexity (and the accounting cost that goes with it) is because the United States is the only developed country in the world that taxes nonresident citizens. You end up with so many situations where it's hundreds to thousands of dollars to compliantly report foreign income, even though the total tax owed is $0.

dennis_jeeves• 5 years ago

I'm not sure I'd describe it as fascinating, so much as abusive.

Agreed, most taxes are protection money masquerading as necessary evil that supposedly benefit the citizens.

smnrchrds2• 5 years ago

Fun fact: In Canada, you are legally required to file your taxes if and only if you would owe taxes. If you would get a refund or there would be no refund but no taxes owed either, it is up to you whether you want to file your taxes or not.

treyfitty• 5 years ago

I don't see the specific term "steal." Which paragraph are you referring to?

IncRnd3• 5 years ago

It is after "Sharing/gig economy" and before "Transporting school children".

"Stolen property. 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."

Black101• 5 years ago

I love tax law

Why do they have a wash sale rule for stock sale losses but not for gains?

refurb4• 5 years ago

Because people only do wash sales to capture losses offsetting gains?

boogies• 5 years ago

the rules are so oddly specific that upon reading them I find myself smiling trying to think of the situation that caused a specific law to be made

I don’t think this is unique to taxes at all, I don’t have a Twitter account or really use it but there’s one account I check regularly: https://nitter.cc/crimeaday (random example https://nitter.cc/CrimeADay/status/1091488611269332993#m).

Waterluvian• 5 years ago

If you love weird tax rules then you'll love weird sports rules and this Web series about them.

https://youtu.be/8tonxd_9_lY

rcurry• 5 years ago

If you return the property you stole, can you deduct that as a loss? And if you steal the same property after declaring a loss are you then subject to “wash sales” rules? Asking for a friend...

baybal2• 5 years ago

I love tax law, honest to goodness, and the US's tax code is so fascinating.

And on the bad side, it is a very big barrier for a legit commerce, and foreign business entrants.

You never know how many tax laws you break every day even if you run a lemonade stand.

prossercj• 5 years ago

I find myself smiling trying to think of the situation that caused a specific law to be made.

I feel this same way about two rules at my college that prohibited (1) building an igloo and sleeping in it, and (2) rappelling from the windows of residence halls.

franga2000• 5 years ago

My favourite tax rule (from Slovenia) is that tax-evasion isn't a tax-deductible expense

29athrowaway• 5 years ago

This is an excellent reason to hide your tax returns. /s

Is this why some known politicians avoid showing their tax returns at all costs?

gumby2• 5 years ago

What's important is that what the IRS learns this way should not be shared with other agencies. That should improve the level of tax collection. In fact information sharing would be an incentive not to share, which, as most tax evasion is goes undetected or at least not followed up, would be a kind of subsidy or tax break to lawbreakers (much as drug laws are a price support and subsidy for drug dealers -- regulatory capture at its most raw).

The same applies to TSA: they should look for weapons and nothing else. No drugs, no other contraband. Narrowing the search space should (hopefully) improve threat detection, so leave unrelated factors to the professionals.

As a general principle this seems to be poorly understood by both legislators and the general public.

Oh and PS: follow this same rule with your code.

csomar2• 5 years ago

What's important is that what the IRS learns this way should not be shared with other agencies.

I'm not sure if it does; but regardless, it's not admissible in a court of law. So if you did hid your steps well, or it was foreign income (which the police/FBI is less enthusiastic to resolve), then you might get off free :)

voxic112• 5 years ago

It certainly is admissible, and it does get shared with other agencies.

Under §6103(i)(1), an assistant U.S. attorney may obtain tax returns as part of a non-tax criminal investigation or grand jury proceeding by submitting an ex parte application to a federal district judge. Taxpayers have no right to notice, a hearing, or dis-closure of the application,1 and prosecutors may file simultaneous motions to seal both the application and subsequent order granting or denying the application.2 The district judge “may” grant the order if (1) there is reasonable cause to believe a criminal act has been committed, (2) there is reasonable cause to believe the tax return is relevant to the commission of the criminal act, and (3) the return is sought exclusively for use in a federal criminal investigation or proceeding and the information sought cannot reasonably be obtained from another source.
In preparing for trial, defense counsel in both tax and non-tax cases need to anticipate that the government might attempt to offer tax returns not directly at issue in the case to show knowledge and intent, unexplained wealth, or even the falsity of rep-resentations made in connection with a fraudulent scheme. While some courts have permitted the gov-ernment to introduce tax returns as circumstantial evidence of some disputed fact...

https://www.maglaw.com/publications/articles/2015-05-21-the-...

jedberg8• 5 years ago

The IRS does not share information unless given a subpoena. But regardless, you don't have to tell them where the income came from, and they won't ask.

spookthesunset2• 5 years ago

to TSA: they should look for weapons and nothing else

I routinely carry various marijuana products in my carry on. Even to Hawaii who scans your baggage on the way to the mainland.

Never once been given a hassle.

ceejayoz2• 5 years ago

It's far more likely to go missing than reported.

smabie• 5 years ago

I've been caught for this, but only because I accidentally tried to carry on a bottle of water. The TSA definitely saw it, but didn't say anything (it was not legal in the state I was in). Probably not worth their time, though I'm guessing minorities might have a different experience (or maybe not, I dunno).

gumby2• 5 years ago

Good thing you weren't carrying cash (from today's HN): https://news.ycombinator.com/item?id=26683755 (Lawsuit against TSA and DEA over airport seizures achieves first victory)

csomar2• 5 years ago

This might seem surprising, but I think this makes sense. The IRS is out there to collect money, and should be neutral regarding the legality of the source of the money. It's up to the prosecutor to decide if the tax payer did something wrong and prove that.

Take drugs for example. Marijuana is legal is some states and illegal in other states. The IRS is federal and should not care about the legality of weed on a particular state. It's up to the tax payer to figure out if what he is doing is legal.

R0b0t1• 5 years ago

There is a more concrete reason. The IRS actively defends people who have tax documents used against them in court, because if those documents can be used against them in court you can no longer be compelled to report income, any income, under the fifth amendment.

But how do you reconcile this with parallel construction? Your divulsion of a stream of income may cause suspicion regardless of its legality and even if it is not directly used as evidence. In many cases you have no obligation to help the government with its job, so frankly it seems like income reporting in general may violate the fifth simply because there is no adequate check on police power.

Spivak• 5 years ago

So what goes wrong with the obvious solution? Treat your tax documents are like a confessional, tax and financial documents found by police are inadmissible in any criminal proceedings (civil is fine), and police aren't allowed to get someone's tax documents from IRS.

ethbr0• 5 years ago

One could argue that it's the transmission of this information that constitutes the paradox.

I.e. if the IRS held certain records as confidential, even from law enforcement, no paradox would exist.

35fbe7d3d5b9• 5 years ago

A very concrete example, from the federal level:

https://en.wikipedia.org/wiki/Marihuana_Tax_Act_of_1937

Shortly after the 1937 Marihuana Tax Act went into effect on October 1, 1937, the Federal Bureau of Narcotics and Denver City police arrested Moses Baca for possession and Samuel Caldwell for dealing. Baca and Caldwell's arrest made them the first marijuana convictions under U.S. federal law for not paying the marijuana tax.
In 1969 in Leary v. United States, part of the Act was ruled to be unconstitutional as a violation of the Fifth Amendment, since a person seeking the tax stamp would have to incriminate him/herself

Some states still have drug tax stamp laws enacted today.

fshbbdssbbgdd3• 5 years ago

I think the right answer is that the courts should come down hard on parallel construction. It’s perjury and obstruction of justice. No pension for you, agent.

joe_the_user• 5 years ago

I don't think there's an answer to this. It's easy to start with drug dealing and go to "sure, let them report income and it's prosecutor's problem to prosecute that". But jump to horrific crime X, say murdering people and harvesting their organs. Should someone able to partially launder their profit from doing this?

I'd prefer that drugs use (and all victimless crimes) be legal and that those who do actual bad things have a hard time profiting from those bad things.

szhu• 5 years ago

In the US, separation of powers is an important concept. I think the reasoning is that if you give parts of the government extra authority beyond what's necessary for them to do their jobs, the damage due to some of them abusing that power in the name of the public good outweighs whatever extra advantage they have in actually serving the public good.

I don't know if this is true in every situation, but the IRS at least seems like an entity we should be wary about giving additional power to, since it already receives so much private personal information about literally everyone in the US.

tenebrisalietum• 5 years ago

How do taxes work with civil forfeiture? Do the police departments pay taxes on that? Is seized money income?

freeone3000• 5 years ago

Government agencies do not pay taxes.

drummer• 5 years ago

The IRS itself are thieves and corrupt officials.

mmhsieh• 5 years ago

does income derived from tax evasion have to be reported? not joking.

antisthenes• 5 years ago

Tax evasion is not extra income.

It just means you underreported another type of income in some other form and ended up paying less taxes as a result.

__blockcipher__4• 5 years ago

Vaguely related, one of my biggest tax pet peeves (beyond people that don't understand marginal tax brackets at all) is the people who will cynically claim that a billionaire just donated to charity $X because they actually make more money from doing that because of the tax deduction. And it's like, no, they get to deduct it from their earned income, so they mathematically always end up with less money by donating it and deducting rather than just keeping it.

geofft• 5 years ago

You can't derive income from tax evasion. You already have the income from some other source, you're just evading being taxed on it. (It's like how, if you buy a video game on sale at $10 off, you didn't make $10, you just avoided spending $10 that you already have in your bank account.)

So you've already reported it (or, if you're evading taxes, perhaps you've already decided not to report it, in which case the answer is simply that you have to not evade taxes...).

If you advise other people on tax evasion and they pay you for your services, then that's presumably employment income of some sort that you should report.

nullc• 5 years ago

There exist refundable tax credits in some cases.

The scammer pretending to be the creator of Bitcoin started off this way: Australia had a refundable tax credit for Research and Development, you could tell them you spent $6 million on R&D and they'd cut you a check for that, even if you had no income. He claimed to have purchased a supercomputer (in panama...). He successfully collected the credit to the tune of millions of dollars, but in a subsequent year asked for something like $40 million, which finally triggered the tax office to act. The whole 'creator of Bitcoin' thing fell out of needing a source for the money supposedly spent on R&D.

(They ultimately didn't fall for it, but he seemed to have escaped criminal prosecution by fleeing the country. He's continuing his scams elsewhere, and sadly now he's started suing journalists and others as yet another component of them.)

frongpik2• 5 years ago

A better question is what if your tax evasion savings had been stolen by your friend who has already paid taxes on the property he had stolen, but not returned, last year?

__blockcipher__4• 5 years ago

This comment got me laughing really hard, but since this is HN I'm going to try to figure out the answer anyway:

I think this scenario is pretty simple and is essentially just that you deduct the amount of money stolen from you from that year's income, provided you discovered the money was stolen that year. Obviously if you haven't discovered it's stolen yet you won't be deducting anything.

It seems that the tax evasion part essentially becomes totally irrelevant since, as others have said, you don't report evaded taxes as income, you just don't tell the IRS you owe those taxes and don't pay them, so from the IRS' perspective it's no different than you getting that quantity of non-evasion money stolen from you

oh_sigh• 5 years ago

Is there any better way to fund the government other than them inserting themselves in-between every transaction that occurs?

Land value tax is there...anything else? It seems like such a weird concept that if I have $X and my friend has a bike, I can buy the bike from him, and then he can buy the bike from me, etc until we owe the government more than the bike is worth because we swapped money<->bike too many times.

CodesInChaos• 5 years ago

In Europe (typical) businesses can deduct VAT they paid, and you don't need to pay VAT on private sales. So effectively you have a sales tax which only applies to B2C sales.

closeparen3• 5 years ago

It’s an interesting question. One nice thing about transactions is they have a market clearing price attached. This keeps valuation grounded in reality.

Another “nice” thing is that it keeps the tax burden on the suckers who actually exchange goods and services, and away from the owners of capital. It is pretty sweet for Bill Gates types that tax policy thinks his senior engineers are “the rich” and pretty much ignores him.

dyingkneepad• 5 years ago

If you get caught and arrested for the stuff you stole, can't the judge tell IRS that you owe them since you didn't declare stuff you stole? Especially if you get arrested only in the next fiscal year.

namank• 5 years ago

I don't think these laws are meant for ordinary citizens. They are meant to aid policing orgs in catching and stopping criminals when police can't catch them. For example, the police can't come up with evidence that someone is selling drugs but they might be able to prove that someone is making money from drugs (which is not a crime) and not paying taxes on it (which is a crime.)

__blockcipher__4• 5 years ago

Yeah it's a very transparent way to have an excuse to throw someone in jail. In a past life I had some illegal income that I briefly considered reporting. Paying taxes on money is way cheaper than laundering it anyway (which I was never big enough to need to do to be clear).

The IRS promises to keep any admissions of illegal income from other government agencies, but in practice that's total bullshit and so anyone with a serious criminal empire would be a total idiot to actually report those taxes. You're damned if you do and damned if you don't.

TwoBit• 5 years ago

way to have an excuse to throw someone in jail

More like: "way to have another means to put a criminal in prison."

hellbannedguy• 5 years ago

Remember too if anyone rights off your debt for tax purposes, like a credit card company; you are expected to pay tax on the amount they right off—-even all the late fees, and other crap they load on your account.

Now if you are basically insolvent, you can give them a letter, and a rudimentary asset/liability statement.

If you get the right (I guess in a good mood) IRS agent they will disavow the tax.

(Personally, I would like to see penalties for tax violators tied to personal assets. A wealthy guy gets a penalty much higher than a poor person. Jail should never be a punishment too.)

mbostleman• 5 years ago

One of the great benefits of sales tax is that all forms of income get taxed. There are no shelters from consumption taxes collected at point of sale.

csw-001• 5 years ago

Good point. Although it's not a flawless solution. It's a good solution to the extent you can't practically shift your consumption to a different jurisdiction (or nation) that doesn't tax the sale of the item. Tricky part becomes capturing consumption tax at customs for items purchased elsewhere to dodge taxes. When you think about the large purchases you can make elsewhere and import with relative ease (like an expensive car) versus the things that can't practically be purchased elsewhere (like groceries), a consumption tax can end up looking regressive. I am a fan of a consumption tax that doesn't kick in until you are over a certain level of spending, so if you consume below a taxable minimum you pay nothing. It's hard to imagine how this would be administered in real life.

gwbas1c4• 5 years ago

For things like cars, you have to provide documentation that you paid the tax when you registered the car.

On the other hand, it's really worth it to drive across state lines when making a $2-3000 purchase.

toomanybeersies4• 5 years ago

The disadvantage is that sales taxes tend to be particularly regressive. If you earn $15k a year, chances are almost all of that goes towards consumptions (i.e. sales taxable spending).

frongpik2• 5 years ago

What do you do if you're a high profile criminal with state-level enemies and can't file tax returns under your real name and address? Can you ask IRS to send you a tax return via a mediator accounting firm (an outlaw entity with headquarters on ships in international waters)?

gwbas1c4• 5 years ago

Use cash and pre-paid gift cards only?

From what I understand, a lot of people "hide in plain sight" by only using cash and not filing their taxes.

vmception3• 5 years ago

You launder it.....

The money laundering conviction requires that the state has proven that the source of money was illicit, successful money laundering only has an indistinguishably licit source. Basically the stigma on simply having a lot of money moving around isn't based in any legal reality. The state has to prove what the source is, that the source was illegal, and then that you are obfuscating the source, in order to prove money laundering, but not a tax evasion conviction. An obfuscated but legal source would not be money laundering, it would be business expenses and compliantly paid taxes.

You don't file taxes on stuff you steal or earn from illegal means, if you do that means you missed a step and incriminated your criminal activities that earn you the funds all to avoid a tax evasion conviction. You pay taxes on the converted money that looks no different from employment or tech sales.

(or like the other person said, not paying taxes at all and keeping a low profile, but I don't agree with that, the goal is to mitigate all technical liability)

hrasyid• 5 years ago

I wonder how the "without revealing its precise source" part works. Probably it's this form, https://www.irs.gov/pub/irs-pdf/f1040s1.pdf do you just add it in line 8 with type = "stuff"? What happens if they need to audit you if it's the correct amount, won't you have to reveal the source then?

isbvhodnvemrwvn3• 5 years ago

A semi-related thing - in Poland there is a law stating that income from prostitution is not taxable.

When some people tried to take advantage of that (to cover illegal income of other kind), they were audited to prove that the money actually comes from prostitution:

- the family was asked whether the person was in fact a prostitute

- the tax payer was asked to specify where the services were performed

- if they said that these were performed at the client's flats, they were asked to specify the addresses (and names of clients) who might also be interviewed

- if they said they did it from clubs and so on, the club owners were asked about it (and likely denied, as even if the people were in fact prostitutes, it is a criminal offense to profit from other people's prostitution)

- if they said they did this at home, the neighbors were interviewed whether the prostitution did in fact take place at home

In some cases they also rejected these income statements because based on the age and looks, the amount of money was much higher than the woman could have been paid.

And if you appeal this decision, you'll likely get a court decision supporting the tax authority, saying that you are in fact an ugly prostitute and that you have to pay 75% taxes since the source of income was not determined.

lordnacho• 5 years ago

Couldn't you claim you work on the web?

isbvhodnvemrwvn3• 5 years ago

Prostitution only covers physical services, camgirls pay the taxes on the normal tax scale (same as e.g. bitcoin profits).

More than that you'll likely need to show your profiles on these portals, so if you were not a camgirl, good luck proving that.

abeyer• 5 years ago

a court decision supporting the tax authority, saying that you are in fact an ugly prostitute

It would be worth it all just for that. Get it framed and hang it with your diploma over the desk.

slim2• 5 years ago

what's the reasoning behind prostitution being non taxable?

isbvhodnvemrwvn3• 5 years ago

Sex can never be a subject of a legally binding contract, and all of those activities (unless overruled by other laws) are not taxable.

11thEarlOfMar• 5 years ago

That makes me ask the question: How much tax revenue does the IRS collect from illegal income each year?

I couldn't find a number, but here's a guy[0] who stole from his clients and the declared the proceeds on his tax returns. Of course, he's an accountant...

[0] https://money.cnn.com/2013/02/28/news/economy/illegal-income...

jariel• 5 years ago

Given so many high profile baddies go down on RICO cases, I wonder if these requirements are in support of this?

If the Mob is clearly instructed to pay tax on their pilfering, and they don't, then it may be easier to get them on the tax evasion than the pilfering?

trhway• 5 years ago

Stolen property. If you steal property, you must report its fair market value in your income in the year you steal it

I wonder do you get to write-off the related expenses? Also, what if the expenses are larger than the income? All those expense in preparation to the failed heist...

The conclusion of the matter is unsurprising; it would be absurd to exempt criminals from reporting income on their tax forms while asking it of honest workers.

curiously, in case of machine gun registration the conclusion was different :

https://en.wikipedia.org/wiki/National_Firearms_Act#Exceptio...

"The United States Supreme Court has ruled in Haynes v. United States that the Fifth Amendment to the United States Constitution exempts felons—and, by extrapolation, all other prohibited possessors—from the registration requirements of the Act. "

bzbarsky2• 5 years ago

Also, what if the expenses are larger than the income?

See IRS publication 536: Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.

amelius• 5 years ago

These types of criminals usually have enough money to pay someone to do their taxes.

SMAAART• 5 years ago

Is this an April fool +1?

Iv• 5 years ago

"Was this page helpful to you? Yes/No"

Nice try.

matt-attack2• 5 years ago

So why does money laundering exist? Is it just because the cost of laundering is lower than the tax rate? I though big criminals paid very high rated to launder money. Like 40% or so. Why not just avoid the additional fraud and pay the taxes on your millions in drug sales?

webmaven4• 5 years ago

So why does money laundering exist? Is it just because the cost of laundering is lower than the tax rate?

No. Laundering illegal gains to appear to be legal profits is to be able to actually spend the money without appearing to be living beyond your means (which gets you audited) and having the true source of income (ie. crime) revealed and prosecuted.

matt-attack2• 5 years ago

Hmm. But that flies I’m the face of the entire premise of this article. If I’m a drug kingpin and have millions of dollars in illicit profit. Suppose I simply pay tax on it. Why should I then care if I get audited? The whole point is that the IRS just cares about you paying taxes. In the audit you’d simply state that it’s drug income and show that you’ve fully paid your share of taxes. The IRS supposedly doesn’t work with law enforcement to report the illegal income. How would law enforcement find out?

I’m seriously missing something here.

chakhs• 5 years ago

So you can be a hitman, but as long as you pay taxes you're a good citizen

IRS guidance for thieves, drug dealers, and corrupt officials

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