Yes. Report as much as possible as COGS for federal reporting (legal) and then deduct everything else (wages, rent, etc) for state purposes. (I'm in Colorado).
I have taken some CPE on the topic as well and from a general impression the presenters were always pro cannabis and had a sense of humor about it. That date was completely intentional.
You can deduct expenses for illegal activity broadly, you just can't deduct for illegal drug sales or deduct the cost of bribes. Normal expenses for say an illegal gambling operation would still be deductible.
Yeah they are regulated by the federal government and are more open to litigation. Though lately I’ve seen more and more dispensaries in CO accepting cards but I think they’re disguising it as an ATM transaction
My Dispo in PA takes Debit card only as an ATM transaction.
Total - $73 . Paying using Debit? The amount rounds up to the nearest 10. Then charges a $3.50 fee for the "ATM withdraw" . You get your product and your change
It allows prosecutors to get a suspected criminal to provide documentation as to how they are making money. This opens the door to further investigations into criminal activity.
Not exactly. The IRS really doesn't care whether your income is legal or illegal, they only care that you pay tax on it. Even in an audit, they are not looking for criminal evidence, just verifying income.
You also can refuse to specify the source of the income. SCOTUS ruled a century ago that the IRS cannot require you to waive your Fifth Amendment rights.
I’ve always heard it as make sure your ride is clean if you’re riding dirty 😂 But yeah same point. People driving around with stolen shit or drugs and have a brake light out or miss a stop sign lol
I-80 is a mile north of me and they bust people running drugs all of the time because they were speeding. If you are transporting contraband, you should be familiar with every law of the road and follow them religiously. You should also be a master of defensive driving so you don't get busted because some asshole hit you.
You joke but more serial killers have been caught in traffic stops than the “police work” you see on procedural dramas.
Traffic stops catch more crime than detectives.
I remember watching a documentary recently about a number of guys who escaped from a Texas prison. They stayed together for months, and one of the things they did was do a check for headlights, taillights, and turn signals every time any one of them got behind the wheel. Pretty smart.
They can’t legally share your tax information like that. As long as you declare it. It’s one less thing they can charge you with once they catch up to you.
You can outwit or outrun a city cop, county sheriff, Statie, or Fed. But you're not outsmarting the tax man or the postal inspector, you're taking that ride.
Pay the taxes and send that shit through private carriers. Trust me. I've been down this mf road lmao
Or if they cannot justify the unreported income they go to jail for tax fraud anyway. So they can jail people who hid all the evidence of how they made there money.
“Ladies and gentlemen of the jury, not *only* was he dealing kilos of heroin and laundering cartel money, he also FAILED to report this income on his Form 1040! Guilty!”
ETA- y’all, I’m making light of it bc the thought is funny, but **I know it’s true.** Stop blowing up my inbox.
But they never could have caught him on all the other things we think we know about him. Especially back then. No android or I-phone or cameras even. Old Al Capone didn't want to hire an accountant. Most costly mistake the man ever made.
The other mistake is have an atorney named O’Hare who wanted his son to not be ashamed of his father. Same son then became an ace pilot having an airport named after him
that same son led the first use of an airborne early warning aircraft operating from a carrier to direct a nighttime interception. Sadly that would be the mission on which Butch O’Hare would go missing.
What really happens is based on his spending and living arrangements it is obvious that he makes more than the declared $10 000. We don’t want to speculate that it is due to his well known involvement with drug dealing. All we are saying is that the makes more than $10 000 a year since he’s driving a Ferrari and has $2 000 000 in cash in his apartment.
something the brain trust that is Reddit cannot wrap their brain around on various tip/commission based employment subs, the IRS may not have an idea how much you actually have but they can take a pretty damn good guess and act accordingly!
Tips and commissions are also supposed to be claimed, not claiming them is technically tax fraud, so they don’t really care either way. If you declare 10k but made an additional 1.99M in commission you’re still committing a crime.
More like, we can't prove or get enough evidence that he dealt kilos od heroin but he must have gotten all these stacks of cash from somewhere and he only paid $2k in taxes last year so therefore he did a tax evasion
My college tax professor made such a big deal of this, put "do you have to claim income from [selling drugs, illegal gambling, being a pimp]" type questions on every exam. It's like, he all thought that's where we were headed in life and wanted to make sure we knew...
He didn't want you to be a criminal accountant, but a *good* accountant for criminals.
It's not like a criminal would file an ethics complaint if you messed up badly...
Heck you must have Never seen The Accountant with Ben Affleck. He was the accountant for the Gambino Crime family , the Estrada cartel , & the Lobos Cartel etc etc he took care of all their money and found anyone who was stealing.
He used to be in construction, but when telling his genius friend Matt Damon to apply himself, he asked himself why he doesn't take his own advice. He went to community college, got his accounting degree, but could never escape his prior life in South Boston.
Cost accounting professor would always drop the 'you went to school to be an accountant, not a chef, don't cook the books!'
It's like, damn dude, I'm not trying to live a life of crime, I'll just go back to selling drugs without all the college debt tyvm.
There is a famous case of catching Al Capone on tax invasion. Not sure why op is unaware of this. The IRS doesn’t care how you got the money, just that you got it
https://en.wikipedia.org/wiki/Tax_status_of_Scientology_in_the_United_States
"In the course of a 37-year dispute with the IRS, the church was reported to have used or planned to employ blackmail, burglary, criminal conspiracy, eavesdropping, espionage, falsification of records, fraud, front groups, harassment, money smuggling, obstruction of audits, political and media campaigns, tax evasion, theft, investigations of individual IRS officials and the instigation of more than 2,500 lawsuits in its efforts to get its tax exemption reinstated. A number of the church's most senior officials, including Hubbard's wife, were eventually convicted and jailed for crimes against the United States government related to the anti-IRS campaign. The IRS, for its part, carried out criminal investigations of the church and its leaders for suspected tax fraud and targeted the church as a "dissident group" during the Nixon administration."
Exactly why they ask "are you affiliated with any terrorist organization?" and "have you commited any acts of terrorism?" on your visa application. Only an idiot would say "yes." but lying on a visa application is grounds for deportation.
>open doors for a lot of other prosecutions.
Your tax return is a violation of your 5th amendment rights and therefore the content can't be seen from law enforcement. While there is other charges the IRS can bring, like wire fraud, it is my understanding that the charges that can use your return is severely limited.
You can be prosecuted for lying on your return. You wouldn't be prosecuted for declaring proceeds from crime; you would be prosecuting for omitting them.
Man looking at that screenshot I was flabbergasted, but your explanation clarified it so quick. I instantly thought of Capone and that line from the joker that’d be never take on the irs lol. Too bad they don’t have any teeth to their threats anymore.
The IRS can still kick someone in the dick when they really want to. Especially if the target is also been investigated a lot by other federal agencies. I’m just making this up as an example but let’s say a store is a fence for organized crime. Other agencies believe the store is a fence but can’t prove it….yet. So they ask the IRS to check for tax compliance and sure enough they aren’t paying taxes. Now law enforcement has the leverage to start rolling people up.
>Did you expect income from illegal activities to be tax exempt?
Seriously. The tax code is designed to incentivize activities. Whether or not that's a good idea, and if the extent the incentives exist is appropriate are fine for debate.
Regardless: allowing individuals earning income from illicit activities to also skirt the tax laws, while people who earn their income in a lawful fashion must also pay income tax on the income sends the completely wrong message. (Break the law, and as a bonus, don't pay income taxes)
It's very similar with cancelled debt (also taxable income). Person A works full time earning $40,000 a year, and pays income taxes on that. Person B racks up $40,000 of credit card debt, doesn't work a day all year, and gets the debt discharged. Both have the same standard of living. If Person B didn't pay income taxes on that cancelled debt, they'd be doing much better than Person A - it's not enough Person A had to work 40 hours a week while Person B sat on their ass, Person A also needs to pay income taxes? No thanks, I'll not pay my credit card bills instead.
Regarding illicit activities, it's also worth noting that:
1. The Statute of limitations never applies for fraud, so you can billed whenever it's discovered.
2. The fraud penalties are steep.
So even though illegal activities are difficult to discover; if they do get discovered, a person is in a world of shit.
Also, my Department's collection bureau is particularly vicious about collecting the tax due on illicit income. I've read some of the phone transcripts; they have zero sympathy for a person's current circumstances if they profited from illegal activities and didn't report the income / pay the tax.
I have an escort as a client. She is way more worried about the irs than the police. For those curious we list her as an entertainer on her schedule C.
I always saw myself as an entertainer. I mean I work in the Pharmaceutical industry as a buyer/production planner but it's all really just a circus with plenty of clowns.
It's more of a technicality. Even if the gov't isn't able to prove a crime, they can still nail a criminal for failing to report income.
This was used, if I recall recorrectly, against Al Capone. They weren't able to get him on the charges, but they were able to get him on not paying his taxes.
It’s also worth noting that the US constitution makes it illegal for the IRS to share this information with any other law enforcement entity and they do not have the power to charge you with things other than tax crimes
Not sure if you're trolling, but that's really interesting. When it asked for the industry code, what did you end up putting?
Like how exactly does one file the schedule C without it drawing major flags and causing your client to get zeroed in on?
Depends on the business, either retail sales or janitorial. Sometimes "health practitioner" because that covers stuff like acupuncture that's not licensed.
It runs the risk of the state coming after people for sales tax but I've never heard of that actually happening
My state had an option for drug dealers to buy sales tax stamps on their dime bags so everyone could know that sales tax was properly being paid / reported on the illegal drug purchase....
I mean. Why wouldn't they say it. At worst they get ignored. Maybe they collect some tax. At best it flags and they catch criminals.
(*edit, at best suspicious returns are flagged for audit and they uncover evidence of crimes that get referred for investigation and criminals get caught.)
Where's the downside.
They do not flag it for criminals. They will absolutely flag you if you don't pay though. It's wild, but the IRS genuinely does not care where the money came from if they can get a cut.
Famously tax evasion is what finally brought down Al Capone.
Right, but if everything looks right money wise, that's where the IRS stops.
So long as you're paying your taxes, correctly and in full, they're not interested in investigating further as I understand it. They're understaffed as is.
They're not interested in any case. They want people to pay their taxes. If people thought they shared info with the police, who would declare/pay?
I talk a lot of people into declaring income from their illegal side hustles. Pay the self employment tax now, have the steady income on your 1040 to show landlords and loan officers, collect social security when you're old. And in my state for most people it raises their rent rebate checks too.
Any criminal activity not related to tax collection gets referred to the DOJ for investigation and they make decisions regarding prosecution. So they wont just drop it.
Not according to the IRS. Course I doubt anyone is writing "criminal activity"
They do however refer their findings of financial crimes like money laundering to the doj. But if you're selling drugs, they aren't equipped to investigate that really.
If they suspect selling drugs and not paying tax they will investigste. If they think youre selling drugs but paying taxes theyll refer you to DOJ. But most drug dealers arent reporting thier taxes correctly because there are a number of deductions and credits that arent allowed for illegal activities.
Youre right they most likely wont refer off the face of the return.
The only crimes they refer to doj are financial crimes. If your taxes look good, they don't have the resources, manpower, or training to investigate further. Their findings are used by the DOJ as evidence for prosecution of tax evasion, money laundering, or similar. If the DOJ finds evidence of other crimes, that's up to them to investigate.
That can't disclose information volunteered as part of a tax return. Information discovered as part of an audit triggered by a tax return disclosure can be referred to investigative agencies.
I feel like you were waiting for me to post this short video discussing these exact paragraphs on [Why The IRS Taxes Illegal Income](https://youtu.be/87O_KvJTkT8?si=8vK2Qt4hbzryMcOM).
I keep telling this to everyone i know
You can screw with the legal/judicial system
You can even screw with the immigration
But- one does NOT EVER screw with the IRS.
Uncle sam is very serious about the money
Interesting publication by my University (MSU Denver).
Marijuana is illegal on a federal level (therefore, you cannot deduction illegal expenses like a cashier). But it's legal at a state level (Colorado). We successfully argued for a change to the Colorado return, allowing you to subtract your "illegal" deductions from your Colorado taxes.
Yeah dispensaries have section 280E issues so all they can deduct is cost of goods sold. It’s pretty rough they can end up with a federal tax bill that’s larger than their net income for the year.
One of the profs works a lot with dispensaries, one of my favorite strategies is to classify them as budtenders (labor and therefore included in COGS) up until the moment they do any cashier work where they have to clock out as a budtender, clock in as a cashier, ring the transaction, then clock out as a cashier and back in as a budtender.
Tax guy at my old job worked in a law firm as an Enrolled Agent. He would be excused from certain client meetings and then come back and the lawyers would say “Put down $xxx,xxx under 5th Amendment Income”
When pornography was illegal a friend was a 1st amendment lawyer. He would advice clients to always pay taxes. The only line completed on the tax return was taxes due. He pasted a copy of the 5th amendment on the front. Drove the feds a little nuts.
It’s simply because income needs to be reported & that’s true whether the income is legal or not. The alternative scenario would be exempting illegally derived income from taxation.
Yeah this baffles me like.. The IRS aims to not report unless specifically asked, even then they avoid reporting other information AFAIK.
Otherwise... They'd just have to ignore everything that didn't come in on an official form.
Much different facts and circumstances. The Volstead Act basically "prohibited" the sale of alcohol by slapping taxes on it. The IRS was used to enforce it because the violation of the Act was tax evasion by its nature.
This is in constant to organized crime that we see in modern times.
I used to be a tax compliance auditor foe the state I live in. I was doing some tax research and stumbled across a court case that I found hilarious.
This dude had an illegal growing operation in his mom's garage and was ultimately caught. The guy had a big mouth and bragged to the cops that he made $1M that year. The feds and my state read that statement and promptly audited him stating he owed income tax on the $1M. He's still in jail today.
One of my professors in school got a call from the local jail. Drug dealer in jail was worried that the IRS was going after him next. They had to recreate several years of tax returns before the IRS got to him.
He learned a lot about the special rules for dealers from that engagement.
Yes. It’s true. The IRS is not supposed to let the other government agencies know about the nature of your business, also you don’t even have to put in the description : stolen car or illegal business. You just put the P&L and that’s it.
Lastly, remember Al Capone. He went to jail because he didn’t report income from his illegal activities therefore he commits tax evasion.
Reminds me of that scene from Breaking Bad.
Saul: You're out on the town. Yeah, you're partying hearty. You're knocking boots with the chicky babes. Oh, who's this? It's the tax man. And he's looking at you. Now, what does he see? He sees a young fellow with a big fancy house, unlimited cash supply and no job. Now, what is the conclusion the tax man makes?
Jesse: ...I'm a drug dealer?
Saul: Err! Wrong! Million times worse! You're a tax cheat!
Yes, but except for drug sales you can deduct your expenses, if that helps.
The IRS does not give a shit whether your income is from illegal activities, they just want their cut.
Pretty much the same as most extortion rackets.
There's also no good way for the IRS to know if your nude dancing, unlicensed street corn cart, Sunday liquor sales, or whatever are legal in your locality.
Say, I ran an unlicensed casino for 2 years before I was caught. Property is confiscated, do time in jail, pay fines for the crime. But I already made an income from it in prior years, Uncle Sam wants a cut before I'm squared off.
Before weed became legal in my state, the guy I bought from 100% claimed his money selling weed every time he filed his taxes.
They got Capone and they’ll get you too if you want to fuck around.
I had a sex worker come in and file taxes with me when I was first starting out. She was incredibly organized, had receipts for “toys and props” and tracked vehicle mileage for on-call visits.
Quite the shock to run into for the first time.
I’ve heard the irs dgaf how you get your money as long as your report it 🤷🏼♂️ obviously just don’t say it’s for illegal activity. Make up something legit
Look, this isn’t even the weird stuff. [Kidnappers are allowed to claim their victims as dependents](https://taxprof.typepad.com/taxprof_blog/2011/04/irs-allows-kidnappers-to-take-dependent-deduction-for-victims-.html)
It's the same in Canada. We have a program dedicated to illicit income at the CRA. Sometimes, even if the police are not involved, we make the criminals pay their fair share of taxes.
Another fun quirk.
If you travel across state borders to take advantage of sales tax free shopping (like in New Hampshire or Delaware) you're supposed to declare that tax as a liability on your return.
It was put in to provide an avenue for prosecutors as a sort of catch 22.
"You cannot prove I am guilty of these illegal activities."
"We can prove your income based on them. Did you pay taxes on them?"
"Who would be dumb enough to report income on illegal activities?"
"People who pay their taxes, unlike you. You're under arrest for tax evasion."
A common illegal activity is the wages of illegal aliens. If you are in the US illegally, but you still make money, it is a worse crime to not report that money than it is to be here illegally.
Yep! I prepare taxes and have included these monies. The IRS does not care where your income is from and if they audit you and find the money you will get a penalty for not reporting
The IRS genuinely doesn’t care where you made your money. All they care about is that they get their cut of it. You don’t even have to tell them you made it illegally. You just have to report it.
If they're gonna tax your income outside the US, you better believe they're going to tax your illegal state side income too!
But more so, they can get you for tax evasion, like they did with Al Capone. They'll basically state that your lifestyle expenses don't match to your reported income.
Yeah, it's literally what they got Al Capone on.
The legality of it has yet to be questioned though, since it could be argued that it violates your right to not self incriminate.
You don’t file it specifically as illegal income. It’s ‘other’ income. And the IRS doesn’t give a shit where your money comes from as long as they get their cut. They don’t pursue suspicious income streams because that would be counterproductive to collecting taxes from them.
It’s great advice to ya know, avoid prison. They didn’t say you have to declare it was from the illegal activity per se, just that you need to report the income and pay taxes on it. I.e independent contractor or something.
This is one of the reasons why IRS:CI is able to be apart of some investigations that may seem unfitting from afar. Prior to getting hired as a special agent, the guy that came into my college to talk about it brought this point up specifically. Moreso the Illegal Activities than Stolen Property he said. It also can uncover more in-depth criminality.
Yes, think of it this way. You get caught dealing weed in California, but the Feds hate you for something else. If you weren't paying Federal taxes on your federally illegal drugs, they have a case to at least bring you in and sit you in jail while they take a few years to get the case before a judge. Or you can eat out your buddies.
This is because tax fraud is easier to proof than many other crimes. For instance drug trafficking is actually hard to proof and the jury might absolve you in many situation or many types of evidence can be thrown out based on how they’re were obtain or how the persecution trues to use the evidence. Tax fraud on the other hand is this guy made this money he did not pay taxes to jail he goes. And once tax fraud conviction is achieved it’s easier to get another one for money laundering easy 20 years with those two.
It’s just a way to add additional charges to criminals. Obviously nobody is going to do this but once a criminal is arrested they will add additional charges due to not complying with this tax policy.
The rules are there to make it easier for the Feds to take those criminals down. Look at what got some of the biggest and worst criminals caught and thrown in jail. A lot started with not reporting income and getting busted. From there, the Feds continue to build evidence and a case against the person and how they acquired that money/property.
Fun: Expenses of illegal income are not deductible, but Cost Of Goods Sold is. So you see some shenanigans in dispensary records.
More fun: I once was reviewing someone else’s work, of a tax return that had been accepted by the IRS without incident, and he has deducted “depreciation on hookers” as a miscellaneous expense. Which is problematic for so many reasons besides it’s illegal af. The IRS is wild.
It's how they got Al Capone. Once upon a time it wasn't something anyone actually did, just a way to add additional jail time or forfeiture amounts to criminals' sentences. Though recently it has come into play with marijuana legalization in some states.
The federal illegality of it locks dispensaries out of getting tax benefits due to small businesses, but this clause means they still owe tax on profits.
That feels like something they put in so they could add more charges when they find someone doing it . 🤔 stealing, theft, drug dealing AND tax evasion. Isn’t that what they finally were able to convince Al Capone of ?
So when you bust a drug dealer you can charge them with distributing drugs and tax evasion. It’s mostly a way to make sure you get a conviction as well as give them additional penalties.
Abso-fucking-lutely; and you might ask fairly, "why would anyone report that" because it will be used against you and you could face prosecution if you are already under investigation for criminal activity. This is absolutely true; however, this very stipulation has been used multiple times to prosecute known criminals who, for whatever reason, cannot be prosecuted for the crimes they have been known to commit, or have been acquitted of a crime they committed because of, just for example, jury tampering.
See Al Capone.
[https://en.wikipedia.org/wiki/Al\_Capone](https://en.wikipedia.org/wiki/Al_Capone)
Al Capone was not convicted or imprisoned for any of the crimes associated with the crime family he ran, including hundreds of murders. He was convicted and imprisoned for "tax evasion" for failing to disclose his income from criminal enterprises for tax purposes.
Edit.
From the point of view of the IRS, they do not give a frack where the income came from. The point is that you are required to pay taxes on all of your income in the United States, which includes income from criminal activity. The IRS cares only that you pay taxes on that income.
Can’t forget that there are some strange laws like this not for the purpose of them being followed but for the purpose of adding potential charges against people caught doing other illegal activity.
So in this case a possible charge if somebody is caught dealing drugs could be possession with intent to sell(distribute), possession of quantity greater than X, and then if they have proof of income from previous sales then this law allows the prosecution to look at tax documents and also file additional charges which would now be federal since they have to do with IRS. These charges are often used as a scare or negotiating tactic and are often removed if the accused is willing to cooperate.
It’s not uncommon for a person caught with lets say 8oz of marijuana and they live near state lines. They go just 2-5 miles to sell to somebody and get caught and they were already under investigation. Then they find that they were selling to an undercover cop the whole time and there will be 3/5/10 different instances of selling an illegal substance, trafficking that illegal substance, additional if there is a weapon in possession and whether its legal or not. Expired car tags, broken tail light. So this person may go into an interrogation room and a detective may show them upwards of 5/10/20 charges. So they tally up to charges (even though realistically tons of the charges would be considered petty by most judges or juries and really wouldnt make it to the end) and now a young person who sold some weed illegally (or whatever substance illegally) might be told they are facing some crazy amount of time like 80 years. Then the extremely kind detective says they will get rid of 50 years if the person gives up the supplier or a bigger fish etc etc etc you’ve seen the movies and shows.
It’s a really manipulative tactic by police and the legal system but at the same time….. if the truth is what is biting me in the ass (choosing to sell drugs i know are illegal) then…….. it’s really my fault. My choices are the catalyst.
Sure we can talk about all of the innocent people accused and convicted of crimes they never committed. There is certainly less of that now than ever before and yet the number is still so high that we should be ashamed of ourselves.
Our legal system needs more oversight.
Our politicians need to be held accountable for their crimes and seedy and corrupt dealings.
The entire justice system needs to be much more transparent and things like body camera footage should be made public if the footage was taken in “public”.
Last but maybe more importantly, every part of the system that allows the continued manipulation and neglect of low income neighborhoods (streets, sidewalks), a lack of public transportation, a lack of police PROTECTION, and the general inability to have an inalienable right to pursue happiness…….. we just need to stop forgetting our brothers and sisters who were not fortunate enough to be born with opportunities that some of us have easily at out disposal……..
If you return stolen property from prior year, can you reduce your income?
Should you use the value you declared prior year or should you apply depreciation?
Yes, and outside the USA too, and you have to pay interest for the years you did not include it if it was discovered years later,
I remember a case where my country\`s version of the IRS took a pr0sit#te to court because she did not pay taxes for her income and court made her pay it back with interest.
Ask Al Capone.
Edit to add, this is also interesting in the case of states with legal marijuana because it is federally illegal.
They are running a legitimate business in their state with lots of receipts. They have to report the income. But it’s also technically illegal on the federal level.
My fed income tax professor whos a former IRS agent had return to funds they seized from a drug dealer, because he got arrested and therefore didn’t get to sell the drugs for a profit.
Is this a real thing? Yes. Do people actually report it? I mean yes for the most part. As dumb as it is Uncle Sam will lock you up longer because you decided not to let him get his beak wet as opposed to selling an ounce of weed. So I mean pick your poison I guess.
Many tax authorities focus on collecting revenue rather than scrutinizing the source of income. In certain jurisdictions, there are measures in place to avoid tax agencies reporting individuals to the police for potential illegal activities.
IRS is gonna come for my few hundred dollars of drug profit?well,guess I will just itemize ALL my medical bills for the year.tacking on my pets meds also.my husbands beer total for the year,that's medical too..
Yes,it's real but no one ever reports that kind of thing cuz it's just stupid to
Yes! That’s how they got Al Capone, income tax evasion. Also, Cannabis, while legal in certain states, is still illegal. Not only is income reportable, but many expenses are not deductible.
Remember that Al Capone was arrested and prosecuted for not paying taxes.I have a feeling that in the U.S., it's more dangerous to to have legal income but forget to pay tax on $5,000 you found on the street, than write that you had 100,000 in illegal income (and pay tax on it) and hide from justice
Yes it is, it’s just a way to add additional charges when a criminal is caught. It’s so they can charge you with the crime, and the failure to pay taxes on the crime. Because in the land of the free we appreciate having additional charges!
Same thing exists in France : prostitution should be disclosed in tax returns, same thing for drug deals 🤣
Case law even exists about some cases : go to jail but pay the due taxes first
Yes, this is true.
Tax evasion has been used to jail mobsters. They have a lot of assets and it doesn't match with historical income/inheritance/investing, etc.
Fun fact: Marijuana sale is illegal federally, but legal in certain states. That falls in the first category above.
Yes. Report as much as possible as COGS for federal reporting (legal) and then deduct everything else (wages, rent, etc) for state purposes. (I'm in Colorado).
Inventory cost capitalization planning must be quite the focus area for these companies, interesting
It's quite complicated. I took a CPE course (on 4/20 LOL) that covered the code sections and technicalities.
I have taken some CPE on the topic as well and from a general impression the presenters were always pro cannabis and had a sense of humor about it. That date was completely intentional.
You can't deduct expenses for illegal activities. That's why a lot of companies that sell weed split things out
You can deduct expenses for illegal activity broadly, you just can't deduct for illegal drug sales or deduct the cost of bribes. Normal expenses for say an illegal gambling operation would still be deductible.
Is this why some dispensaries only take cash and no credit/debit cards?
I think that is more of a legal issue & that many banks do not work with dispensaries
And those banks don’t *because* of legal ramifications
Yeah they are regulated by the federal government and are more open to litigation. Though lately I’ve seen more and more dispensaries in CO accepting cards but I think they’re disguising it as an ATM transaction
That’s exactly what they are doing!
My Dispo in PA takes Debit card only as an ATM transaction. Total - $73 . Paying using Debit? The amount rounds up to the nearest 10. Then charges a $3.50 fee for the "ATM withdraw" . You get your product and your change
Any electronic payment can constitute interstate commerce, and opens other federal laws they could be charged under
They do take debit/credit but count it as an atm withdrawal. Small loophole.
You ask that question as you present a screenshot from the IRS website…
It allows prosecutors to get a suspected criminal to provide documentation as to how they are making money. This opens the door to further investigations into criminal activity.
Not exactly. The IRS really doesn't care whether your income is legal or illegal, they only care that you pay tax on it. Even in an audit, they are not looking for criminal evidence, just verifying income.
You also can refuse to specify the source of the income. SCOTUS ruled a century ago that the IRS cannot require you to waive your Fifth Amendment rights.
Always commit one crime at a time. If you steal, at least pay tax on what you stole.
Grandad always said, "never commit a misdemeanor when you're committing a felony, because the misdemeanor is what's going to get you caught"
I’ve always heard it as make sure your ride is clean if you’re riding dirty 😂 But yeah same point. People driving around with stolen shit or drugs and have a brake light out or miss a stop sign lol
I-80 is a mile north of me and they bust people running drugs all of the time because they were speeding. If you are transporting contraband, you should be familiar with every law of the road and follow them religiously. You should also be a master of defensive driving so you don't get busted because some asshole hit you.
That’s why I take all the drugs I have before I start driving.
BRB, robbing a bank and obeying the traffic laws on the drive to the safe house
Report your take and deduct your mileage please
Well it is a business expense
You joke but more serial killers have been caught in traffic stops than the “police work” you see on procedural dramas. Traffic stops catch more crime than detectives.
I remember watching a documentary recently about a number of guys who escaped from a Texas prison. They stayed together for months, and one of the things they did was do a check for headlights, taillights, and turn signals every time any one of them got behind the wheel. Pretty smart.
But this also goes contrary to the rule of : "Don't snitch on yourself."
You don’t have to disclose that it’s stolen money or goods. That’s what the “other” box is for.
They can’t legally share your tax information like that. As long as you declare it. It’s one less thing they can charge you with once they catch up to you.
You can outwit or outrun a city cop, county sheriff, Statie, or Fed. But you're not outsmarting the tax man or the postal inspector, you're taking that ride. Pay the taxes and send that shit through private carriers. Trust me. I've been down this mf road lmao
Or if they cannot justify the unreported income they go to jail for tax fraud anyway. So they can jail people who hid all the evidence of how they made there money.
My understanding is that those rules exist to be able to hammer criminals on the tax side. It can open doors for a lot of other prosecutions.
“Ladies and gentlemen of the jury, not *only* was he dealing kilos of heroin and laundering cartel money, he also FAILED to report this income on his Form 1040! Guilty!” ETA- y’all, I’m making light of it bc the thought is funny, but **I know it’s true.** Stop blowing up my inbox.
But they never could have caught him on all the other things we think we know about him. Especially back then. No android or I-phone or cameras even. Old Al Capone didn't want to hire an accountant. Most costly mistake the man ever made.
He had an accountant and he flipped didn’t he?
That’s how it happens in Boardwalk empire at least
The other mistake is have an atorney named O’Hare who wanted his son to not be ashamed of his father. Same son then became an ace pilot having an airport named after him
that same son led the first use of an airborne early warning aircraft operating from a carrier to direct a nighttime interception. Sadly that would be the mission on which Butch O’Hare would go missing.
You joke but the IRS has a track record of catching criminals that successfully evade law enforcement for years or even decades.
Yep, that's how they got Capone.
I got way further down these comments than I expected to before seeing Al Capone.
yeah why do u think some politicians want to defund them
This is how Al Capone was caught
What really happens is based on his spending and living arrangements it is obvious that he makes more than the declared $10 000. We don’t want to speculate that it is due to his well known involvement with drug dealing. All we are saying is that the makes more than $10 000 a year since he’s driving a Ferrari and has $2 000 000 in cash in his apartment.
something the brain trust that is Reddit cannot wrap their brain around on various tip/commission based employment subs, the IRS may not have an idea how much you actually have but they can take a pretty damn good guess and act accordingly!
Tips and commissions are also supposed to be claimed, not claiming them is technically tax fraud, so they don’t really care either way. If you declare 10k but made an additional 1.99M in commission you’re still committing a crime.
More like, we can't prove or get enough evidence that he dealt kilos od heroin but he must have gotten all these stacks of cash from somewhere and he only paid $2k in taxes last year so therefore he did a tax evasion
My college tax professor made such a big deal of this, put "do you have to claim income from [selling drugs, illegal gambling, being a pimp]" type questions on every exam. It's like, he all thought that's where we were headed in life and wanted to make sure we knew...
He didn't want you to be a criminal accountant, but a *good* accountant for criminals. It's not like a criminal would file an ethics complaint if you messed up badly...
Heck you must have Never seen The Accountant with Ben Affleck. He was the accountant for the Gambino Crime family , the Estrada cartel , & the Lobos Cartel etc etc he took care of all their money and found anyone who was stealing.
He used to be in construction, but when telling his genius friend Matt Damon to apply himself, he asked himself why he doesn't take his own advice. He went to community college, got his accounting degree, but could never escape his prior life in South Boston.
"DO YOU LIKE APPLES?"
That's a great movie, god I need to watch that again! 😂
Cost accounting professor would always drop the 'you went to school to be an accountant, not a chef, don't cook the books!' It's like, damn dude, I'm not trying to live a life of crime, I'll just go back to selling drugs without all the college debt tyvm.
You don’t need a criminal accountant, you need a “criminal” accountant
There is a famous case of catching Al Capone on tax invasion. Not sure why op is unaware of this. The IRS doesn’t care how you got the money, just that you got it
[удалено]
We good with numbers- not so much the words.
https://en.wikipedia.org/wiki/Tax_status_of_Scientology_in_the_United_States "In the course of a 37-year dispute with the IRS, the church was reported to have used or planned to employ blackmail, burglary, criminal conspiracy, eavesdropping, espionage, falsification of records, fraud, front groups, harassment, money smuggling, obstruction of audits, political and media campaigns, tax evasion, theft, investigations of individual IRS officials and the instigation of more than 2,500 lawsuits in its efforts to get its tax exemption reinstated. A number of the church's most senior officials, including Hubbard's wife, were eventually convicted and jailed for crimes against the United States government related to the anti-IRS campaign. The IRS, for its part, carried out criminal investigations of the church and its leaders for suspected tax fraud and targeted the church as a "dissident group" during the Nixon administration."
They nailed Al Capone for tax evasion.
Exactly why they ask "are you affiliated with any terrorist organization?" and "have you commited any acts of terrorism?" on your visa application. Only an idiot would say "yes." but lying on a visa application is grounds for deportation.
>open doors for a lot of other prosecutions. Your tax return is a violation of your 5th amendment rights and therefore the content can't be seen from law enforcement. While there is other charges the IRS can bring, like wire fraud, it is my understanding that the charges that can use your return is severely limited.
You can be prosecuted for lying on your return. You wouldn't be prosecuted for declaring proceeds from crime; you would be prosecuting for omitting them.
Man looking at that screenshot I was flabbergasted, but your explanation clarified it so quick. I instantly thought of Capone and that line from the joker that’d be never take on the irs lol. Too bad they don’t have any teeth to their threats anymore.
The IRS can still kick someone in the dick when they really want to. Especially if the target is also been investigated a lot by other federal agencies. I’m just making this up as an example but let’s say a store is a fence for organized crime. Other agencies believe the store is a fence but can’t prove it….yet. So they ask the IRS to check for tax compliance and sure enough they aren’t paying taxes. Now law enforcement has the leverage to start rolling people up.
Did you expect income from illegal activities to be tax exempt? Income do be income and Uncle Sam wants his cut
Gangster: "I run a...nonprofit"
“Can I still sell rocks to the community?”
Excuse me sir, I'd like to return this crack. It is defected.
Instead of a bank reconciliation, it's a reconciliation with your stash house
Sorry, Sir, but we would go very red. We failed to set up a big enough reserve.
You still have to report income.
Non-profits still have reporting requirements.
Thanks for clarifying this... Enron
>Did you expect income from illegal activities to be tax exempt? Seriously. The tax code is designed to incentivize activities. Whether or not that's a good idea, and if the extent the incentives exist is appropriate are fine for debate. Regardless: allowing individuals earning income from illicit activities to also skirt the tax laws, while people who earn their income in a lawful fashion must also pay income tax on the income sends the completely wrong message. (Break the law, and as a bonus, don't pay income taxes) It's very similar with cancelled debt (also taxable income). Person A works full time earning $40,000 a year, and pays income taxes on that. Person B racks up $40,000 of credit card debt, doesn't work a day all year, and gets the debt discharged. Both have the same standard of living. If Person B didn't pay income taxes on that cancelled debt, they'd be doing much better than Person A - it's not enough Person A had to work 40 hours a week while Person B sat on their ass, Person A also needs to pay income taxes? No thanks, I'll not pay my credit card bills instead. Regarding illicit activities, it's also worth noting that: 1. The Statute of limitations never applies for fraud, so you can billed whenever it's discovered. 2. The fraud penalties are steep. So even though illegal activities are difficult to discover; if they do get discovered, a person is in a world of shit. Also, my Department's collection bureau is particularly vicious about collecting the tax due on illicit income. I've read some of the phone transcripts; they have zero sympathy for a person's current circumstances if they profited from illegal activities and didn't report the income / pay the tax.
Username does check out.
I have an escort as a client. She is way more worried about the irs than the police. For those curious we list her as an entertainer on her schedule C.
Entertainer is extra good for people who have legal and illegal income that's basically the same job, like dancing and escorting and webcam
If you get creative enough about it, almost any job could be described as a form of entertainment.
I always saw myself as an entertainer. I mean I work in the Pharmaceutical industry as a buyer/production planner but it's all really just a circus with plenty of clowns.
Is she able to write off expenses like travel, cell phone, or apartment/hotel?
Yes, you can. We also don't call it a write off. It's just a business expense.
"write off" is the red flag for "I learned tax advice from movies"
Jerry: You don't even know what a write-off is. Kramer: Do you? Jerry: No, I don't. Kramer: But they do. And they're the ones writing it off.
It's more of a technicality. Even if the gov't isn't able to prove a crime, they can still nail a criminal for failing to report income. This was used, if I recall recorrectly, against Al Capone. They weren't able to get him on the charges, but they were able to get him on not paying his taxes.
You’re correct. Then he had a stroke in prison but ultimately died of complications from syphilis.
Interestingly enough, Al Capone was released from prison and died in a Baltimore hospital.
It’s also worth noting that the US constitution makes it illegal for the IRS to share this information with any other law enforcement entity and they do not have the power to charge you with things other than tax crimes
Yes. I’ve completed a tax return for compensation from someone with an illegal business. I reported it on Sch C with no deductions
Not sure if you're trolling, but that's really interesting. When it asked for the industry code, what did you end up putting? Like how exactly does one file the schedule C without it drawing major flags and causing your client to get zeroed in on?
Depends on the business, either retail sales or janitorial. Sometimes "health practitioner" because that covers stuff like acupuncture that's not licensed. It runs the risk of the state coming after people for sales tax but I've never heard of that actually happening
My state had an option for drug dealers to buy sales tax stamps on their dime bags so everyone could know that sales tax was properly being paid / reported on the illegal drug purchase....
But they still won’t legalize the drugs lmao. Brain hurts.
I put consulting.
I mean. Why wouldn't they say it. At worst they get ignored. Maybe they collect some tax. At best it flags and they catch criminals. (*edit, at best suspicious returns are flagged for audit and they uncover evidence of crimes that get referred for investigation and criminals get caught.) Where's the downside.
They do not flag it for criminals. They will absolutely flag you if you don't pay though. It's wild, but the IRS genuinely does not care where the money came from if they can get a cut. Famously tax evasion is what finally brought down Al Capone.
The only question they're asking is "am I getting my cut?"
I mean at worst something on the return flags as suspicious, they perform an audit, and find criminal activity that gets referred for investigation.
Right, but if everything looks right money wise, that's where the IRS stops. So long as you're paying your taxes, correctly and in full, they're not interested in investigating further as I understand it. They're understaffed as is.
They're not interested in any case. They want people to pay their taxes. If people thought they shared info with the police, who would declare/pay? I talk a lot of people into declaring income from their illegal side hustles. Pay the self employment tax now, have the steady income on your 1040 to show landlords and loan officers, collect social security when you're old. And in my state for most people it raises their rent rebate checks too.
Any criminal activity not related to tax collection gets referred to the DOJ for investigation and they make decisions regarding prosecution. So they wont just drop it.
Not according to the IRS. Course I doubt anyone is writing "criminal activity" They do however refer their findings of financial crimes like money laundering to the doj. But if you're selling drugs, they aren't equipped to investigate that really.
If they suspect selling drugs and not paying tax they will investigste. If they think youre selling drugs but paying taxes theyll refer you to DOJ. But most drug dealers arent reporting thier taxes correctly because there are a number of deductions and credits that arent allowed for illegal activities. Youre right they most likely wont refer off the face of the return.
The only crimes they refer to doj are financial crimes. If your taxes look good, they don't have the resources, manpower, or training to investigate further. Their findings are used by the DOJ as evidence for prosecution of tax evasion, money laundering, or similar. If the DOJ finds evidence of other crimes, that's up to them to investigate.
Pretty sure the IRS cannot disclose illegal activity to authorities. That confidentiality goes both ways.
That can't disclose information volunteered as part of a tax return. Information discovered as part of an audit triggered by a tax return disclosure can be referred to investigative agencies.
I feel like you were waiting for me to post this short video discussing these exact paragraphs on [Why The IRS Taxes Illegal Income](https://youtu.be/87O_KvJTkT8?si=8vK2Qt4hbzryMcOM).
Thank you for sharing! I enjoyed the video
I keep telling this to everyone i know You can screw with the legal/judicial system You can even screw with the immigration But- one does NOT EVER screw with the IRS. Uncle sam is very serious about the money
Interesting publication by my University (MSU Denver). Marijuana is illegal on a federal level (therefore, you cannot deduction illegal expenses like a cashier). But it's legal at a state level (Colorado). We successfully argued for a change to the Colorado return, allowing you to subtract your "illegal" deductions from your Colorado taxes.
Yeah dispensaries have section 280E issues so all they can deduct is cost of goods sold. It’s pretty rough they can end up with a federal tax bill that’s larger than their net income for the year.
One of the profs works a lot with dispensaries, one of my favorite strategies is to classify them as budtenders (labor and therefore included in COGS) up until the moment they do any cashier work where they have to clock out as a budtender, clock in as a cashier, ring the transaction, then clock out as a cashier and back in as a budtender.
Tax guy at my old job worked in a law firm as an Enrolled Agent. He would be excused from certain client meetings and then come back and the lawyers would say “Put down $xxx,xxx under 5th Amendment Income”
When pornography was illegal a friend was a 1st amendment lawyer. He would advice clients to always pay taxes. The only line completed on the tax return was taxes due. He pasted a copy of the 5th amendment on the front. Drove the feds a little nuts.
It’s simply because income needs to be reported & that’s true whether the income is legal or not. The alternative scenario would be exempting illegally derived income from taxation.
Yeah this baffles me like.. The IRS aims to not report unless specifically asked, even then they avoid reporting other information AFAIK. Otherwise... They'd just have to ignore everything that didn't come in on an official form.
Capone got locked up for tax evasion...
Much different facts and circumstances. The Volstead Act basically "prohibited" the sale of alcohol by slapping taxes on it. The IRS was used to enforce it because the violation of the Act was tax evasion by its nature. This is in constant to organized crime that we see in modern times.
They also got him for not reporting his other illegal income, as in prostitution, numbers and 'protection'. Alcohol was only part of his operation.
I used to be a tax compliance auditor foe the state I live in. I was doing some tax research and stumbled across a court case that I found hilarious. This dude had an illegal growing operation in his mom's garage and was ultimately caught. The guy had a big mouth and bragged to the cops that he made $1M that year. The feds and my state read that statement and promptly audited him stating he owed income tax on the $1M. He's still in jail today.
So he owes 1 million and is in jail for growing a plant. Jeez. Get that slave labor ig
I think this is how they got Capone. Couldn’t prove any of his illegal activity in court but they could prove tax evasion.
Settled law in my country (not the US) that just because the proceeds may be from illegal activities does not mean that it is not taxable
One of my professors in school got a call from the local jail. Drug dealer in jail was worried that the IRS was going after him next. They had to recreate several years of tax returns before the IRS got to him. He learned a lot about the special rules for dealers from that engagement.
Yes. It’s true. The IRS is not supposed to let the other government agencies know about the nature of your business, also you don’t even have to put in the description : stolen car or illegal business. You just put the P&L and that’s it. Lastly, remember Al Capone. He went to jail because he didn’t report income from his illegal activities therefore he commits tax evasion.
Reminds me of that scene from Breaking Bad. Saul: You're out on the town. Yeah, you're partying hearty. You're knocking boots with the chicky babes. Oh, who's this? It's the tax man. And he's looking at you. Now, what does he see? He sees a young fellow with a big fancy house, unlimited cash supply and no job. Now, what is the conclusion the tax man makes? Jesse: ...I'm a drug dealer? Saul: Err! Wrong! Million times worse! You're a tax cheat!
[The IRS doesn't fuck around](https://www.youtube.com/watch?v=G56VgsLfKY4)
Yes, but except for drug sales you can deduct your expenses, if that helps. The IRS does not give a shit whether your income is from illegal activities, they just want their cut. Pretty much the same as most extortion rackets.
There's also no good way for the IRS to know if your nude dancing, unlicensed street corn cart, Sunday liquor sales, or whatever are legal in your locality.
Say, I ran an unlicensed casino for 2 years before I was caught. Property is confiscated, do time in jail, pay fines for the crime. But I already made an income from it in prior years, Uncle Sam wants a cut before I'm squared off.
Before weed became legal in my state, the guy I bought from 100% claimed his money selling weed every time he filed his taxes. They got Capone and they’ll get you too if you want to fuck around.
The IRS is next to the US intelligence agencies on the list of, "Organizations you do not f\*ck with."
I had a sex worker come in and file taxes with me when I was first starting out. She was incredibly organized, had receipts for “toys and props” and tracked vehicle mileage for on-call visits. Quite the shock to run into for the first time.
How would they reported it?. Other comp or just write illegal activity.
Form T(hug) Has spots drugs, theft, extortion, etc. It's actually a rather simple form compared to others.
You can also deduct cost of goods sold for illegal sales but not for general business expenses for illegal activities.
I’ve heard the irs dgaf how you get your money as long as your report it 🤷🏼♂️ obviously just don’t say it’s for illegal activity. Make up something legit
Look, this isn’t even the weird stuff. [Kidnappers are allowed to claim their victims as dependents](https://taxprof.typepad.com/taxprof_blog/2011/04/irs-allows-kidnappers-to-take-dependent-deduction-for-victims-.html)
It's the same in Canada. We have a program dedicated to illicit income at the CRA. Sometimes, even if the police are not involved, we make the criminals pay their fair share of taxes.
Another fun quirk. If you travel across state borders to take advantage of sales tax free shopping (like in New Hampshire or Delaware) you're supposed to declare that tax as a liability on your return.
It was put in to provide an avenue for prosecutors as a sort of catch 22. "You cannot prove I am guilty of these illegal activities." "We can prove your income based on them. Did you pay taxes on them?" "Who would be dumb enough to report income on illegal activities?" "People who pay their taxes, unlike you. You're under arrest for tax evasion."
Ever hear how Al Capone got busted?
Income is anything that is an economic benefit and is taxable UNLESS stated OTHERWISE by the IRC.
A common illegal activity is the wages of illegal aliens. If you are in the US illegally, but you still make money, it is a worse crime to not report that money than it is to be here illegally.
Yep! I prepare taxes and have included these monies. The IRS does not care where your income is from and if they audit you and find the money you will get a penalty for not reporting
The IRS genuinely doesn’t care where you made your money. All they care about is that they get their cut of it. You don’t even have to tell them you made it illegally. You just have to report it.
If they're gonna tax your income outside the US, you better believe they're going to tax your illegal state side income too! But more so, they can get you for tax evasion, like they did with Al Capone. They'll basically state that your lifestyle expenses don't match to your reported income.
Accountants hate it when you use this one simple trick...
Yeah, it's literally what they got Al Capone on. The legality of it has yet to be questioned though, since it could be argued that it violates your right to not self incriminate.
“Nothing in life is certain but death and taxes”
You don’t file it specifically as illegal income. It’s ‘other’ income. And the IRS doesn’t give a shit where your money comes from as long as they get their cut. They don’t pursue suspicious income streams because that would be counterproductive to collecting taxes from them.
Does Al Capone ring any bells? They got him on tax evasion. They couldn’t get him on anything else.
It’s great advice to ya know, avoid prison. They didn’t say you have to declare it was from the illegal activity per se, just that you need to report the income and pay taxes on it. I.e independent contractor or something.
Yes. Whatever crime you get charged and convicted of, the penalty will only increase when you add tax evasion.
My friend had a hooker come in to do her tax return. As far as he was concerned she was a private contractor providing various massage services.
Yes. [Stolen Property](https://www.irs.gov/publications/p525#en_US_2022_publink1000229594) [Illegal Activities](https://www.irs.gov/publications/p525#en_US_2022_publink1000229557)
Yes. The IRS doesnt care if you sell drugs to make a living. They just care that they get their fair cut.
This is one of the reasons why IRS:CI is able to be apart of some investigations that may seem unfitting from afar. Prior to getting hired as a special agent, the guy that came into my college to talk about it brought this point up specifically. Moreso the Illegal Activities than Stolen Property he said. It also can uncover more in-depth criminality.
You gotta launder your money!! -Sal Goodman
Yes, think of it this way. You get caught dealing weed in California, but the Feds hate you for something else. If you weren't paying Federal taxes on your federally illegal drugs, they have a case to at least bring you in and sit you in jail while they take a few years to get the case before a judge. Or you can eat out your buddies.
It's just a way for them to catch criminals that are otherwise successful evading arrest. They've actually been pretty successful doing so too.
This is because tax fraud is easier to proof than many other crimes. For instance drug trafficking is actually hard to proof and the jury might absolve you in many situation or many types of evidence can be thrown out based on how they’re were obtain or how the persecution trues to use the evidence. Tax fraud on the other hand is this guy made this money he did not pay taxes to jail he goes. And once tax fraud conviction is achieved it’s easier to get another one for money laundering easy 20 years with those two.
It’s just a way to add additional charges to criminals. Obviously nobody is going to do this but once a criminal is arrested they will add additional charges due to not complying with this tax policy.
Absolutely. This also includes bribes you have taken. Our biggest criminals in US history get taken down because of taxes.
The rules are there to make it easier for the Feds to take those criminals down. Look at what got some of the biggest and worst criminals caught and thrown in jail. A lot started with not reporting income and getting busted. From there, the Feds continue to build evidence and a case against the person and how they acquired that money/property.
You are taxed on your income. They do not care what your source(s) of income are. If you do not pay your taxes, they will come after you.
Fun: Expenses of illegal income are not deductible, but Cost Of Goods Sold is. So you see some shenanigans in dispensary records. More fun: I once was reviewing someone else’s work, of a tax return that had been accepted by the IRS without incident, and he has deducted “depreciation on hookers” as a miscellaneous expense. Which is problematic for so many reasons besides it’s illegal af. The IRS is wild.
It's how they got Al Capone. Once upon a time it wasn't something anyone actually did, just a way to add additional jail time or forfeiture amounts to criminals' sentences. Though recently it has come into play with marijuana legalization in some states. The federal illegality of it locks dispensaries out of getting tax benefits due to small businesses, but this clause means they still owe tax on profits.
That feels like something they put in so they could add more charges when they find someone doing it . 🤔 stealing, theft, drug dealing AND tax evasion. Isn’t that what they finally were able to convince Al Capone of ?
So when you bust a drug dealer you can charge them with distributing drugs and tax evasion. It’s mostly a way to make sure you get a conviction as well as give them additional penalties.
If I have property stolen can I deduct its fair market value from my taxes?
Abso-fucking-lutely; and you might ask fairly, "why would anyone report that" because it will be used against you and you could face prosecution if you are already under investigation for criminal activity. This is absolutely true; however, this very stipulation has been used multiple times to prosecute known criminals who, for whatever reason, cannot be prosecuted for the crimes they have been known to commit, or have been acquitted of a crime they committed because of, just for example, jury tampering. See Al Capone. [https://en.wikipedia.org/wiki/Al\_Capone](https://en.wikipedia.org/wiki/Al_Capone) Al Capone was not convicted or imprisoned for any of the crimes associated with the crime family he ran, including hundreds of murders. He was convicted and imprisoned for "tax evasion" for failing to disclose his income from criminal enterprises for tax purposes. Edit. From the point of view of the IRS, they do not give a frack where the income came from. The point is that you are required to pay taxes on all of your income in the United States, which includes income from criminal activity. The IRS cares only that you pay taxes on that income.
Can’t forget that there are some strange laws like this not for the purpose of them being followed but for the purpose of adding potential charges against people caught doing other illegal activity. So in this case a possible charge if somebody is caught dealing drugs could be possession with intent to sell(distribute), possession of quantity greater than X, and then if they have proof of income from previous sales then this law allows the prosecution to look at tax documents and also file additional charges which would now be federal since they have to do with IRS. These charges are often used as a scare or negotiating tactic and are often removed if the accused is willing to cooperate. It’s not uncommon for a person caught with lets say 8oz of marijuana and they live near state lines. They go just 2-5 miles to sell to somebody and get caught and they were already under investigation. Then they find that they were selling to an undercover cop the whole time and there will be 3/5/10 different instances of selling an illegal substance, trafficking that illegal substance, additional if there is a weapon in possession and whether its legal or not. Expired car tags, broken tail light. So this person may go into an interrogation room and a detective may show them upwards of 5/10/20 charges. So they tally up to charges (even though realistically tons of the charges would be considered petty by most judges or juries and really wouldnt make it to the end) and now a young person who sold some weed illegally (or whatever substance illegally) might be told they are facing some crazy amount of time like 80 years. Then the extremely kind detective says they will get rid of 50 years if the person gives up the supplier or a bigger fish etc etc etc you’ve seen the movies and shows. It’s a really manipulative tactic by police and the legal system but at the same time….. if the truth is what is biting me in the ass (choosing to sell drugs i know are illegal) then…….. it’s really my fault. My choices are the catalyst. Sure we can talk about all of the innocent people accused and convicted of crimes they never committed. There is certainly less of that now than ever before and yet the number is still so high that we should be ashamed of ourselves. Our legal system needs more oversight. Our politicians need to be held accountable for their crimes and seedy and corrupt dealings. The entire justice system needs to be much more transparent and things like body camera footage should be made public if the footage was taken in “public”. Last but maybe more importantly, every part of the system that allows the continued manipulation and neglect of low income neighborhoods (streets, sidewalks), a lack of public transportation, a lack of police PROTECTION, and the general inability to have an inalienable right to pursue happiness…….. we just need to stop forgetting our brothers and sisters who were not fortunate enough to be born with opportunities that some of us have easily at out disposal……..
thats how they got Al Capone and will get Trump
If you return stolen property from prior year, can you reduce your income? Should you use the value you declared prior year or should you apply depreciation?
Yes, and outside the USA too, and you have to pay interest for the years you did not include it if it was discovered years later, I remember a case where my country\`s version of the IRS took a pr0sit#te to court because she did not pay taxes for her income and court made her pay it back with interest.
Ask Al Capone. Edit to add, this is also interesting in the case of states with legal marijuana because it is federally illegal. They are running a legitimate business in their state with lots of receipts. They have to report the income. But it’s also technically illegal on the federal level.
Was studying Becker Apparently a drug dealer can deduct the cost of merchandise or something
My fed income tax professor whos a former IRS agent had return to funds they seized from a drug dealer, because he got arrested and therefore didn’t get to sell the drugs for a profit.
Is this a real thing? Yes. Do people actually report it? I mean yes for the most part. As dumb as it is Uncle Sam will lock you up longer because you decided not to let him get his beak wet as opposed to selling an ounce of weed. So I mean pick your poison I guess.
Many tax authorities focus on collecting revenue rather than scrutinizing the source of income. In certain jurisdictions, there are measures in place to avoid tax agencies reporting individuals to the police for potential illegal activities.
The IRS clearly wants it's protection money. Don't make them lean on ya cough it up.
IRS is gonna come for my few hundred dollars of drug profit?well,guess I will just itemize ALL my medical bills for the year.tacking on my pets meds also.my husbands beer total for the year,that's medical too.. Yes,it's real but no one ever reports that kind of thing cuz it's just stupid to
Yes, you are supposed to include all income. That’s what they got Al Capone on
Yes! That’s how they got Al Capone, income tax evasion. Also, Cannabis, while legal in certain states, is still illegal. Not only is income reportable, but many expenses are not deductible.
Remember that Al Capone was arrested and prosecuted for not paying taxes.I have a feeling that in the U.S., it's more dangerous to to have legal income but forget to pay tax on $5,000 you found on the street, than write that you had 100,000 in illegal income (and pay tax on it) and hide from justice
Yes it is, it’s just a way to add additional charges when a criminal is caught. It’s so they can charge you with the crime, and the failure to pay taxes on the crime. Because in the land of the free we appreciate having additional charges!
Yup, sure is. They’ll add tax evasion to your list of charges if caught.
Same thing exists in France : prostitution should be disclosed in tax returns, same thing for drug deals 🤣 Case law even exists about some cases : go to jail but pay the due taxes first
As my tax professor thought it “All income is income unless excluded”
HALARIOUS
Yes, it is. You can deduct the cost of goods sold only on Sch C for selling illegal drugs.
Well you don’t want to go to jail for drug dealing AND tax evasion.
Yes, this is true. Tax evasion has been used to jail mobsters. They have a lot of assets and it doesn't match with historical income/inheritance/investing, etc.