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Is someone safe if they report income from illegal means to the IRS?

I have seen multiple times on Lemmy that the IRS wants people to report income from illegal means and that they don’t care to bust someone for it. For example, an illicit drug dealer is expected by the IRS to report their drug sale revenue without having to worry about being caught for drug dealing.

Will the IRS seriously not report illegal activities or individuals that report they earned income through vague illegal means?

If they don’t, do law enforcement agencies skim IRS tax reports to find people that report illegal income to further investigate?

Can IRS tax forms that report illegal income be used against someone in court?

It just seems ridiculous that reporting illegal activity, however undefined, to the federal government would be a safe option.

slazer2au ,

Why would the IRS need to know the source of the money? You generally don’t have to report the source of income, just the income itself to IRS.

Now no person is going to directly report the drug money, it will be reported via a front company where cash transactions are normal and expected.

EleventhHour ,
@EleventhHour@lemmy.world avatar

Now no person is going to directly report the drug money, it will be reported via a front company where cash transactions are normal and expected.

aka money laundering

best_username_ever ,

Why would the [government] need to know [whether money has been illegally acquired or not]?

I think you have the answer to your question.

slazer2au ,

I didn’t say government, I said IRS.

The FBI however, they would like to know.

best_username_ever ,

I’m not American though. I didn’t realize that the IRS is not a branch of the government and definitely does not share its data with other people.

slazer2au ,

Still missing the point mate.

From a tax pov the gov doesn’t care as long as it gets it cut.

tarmarbar ,

The tax pov is not the only pov that interests you if you sell drugs tho.

Maeve ,

Street preachers?

EleventhHour ,
@EleventhHour@lemmy.world avatar

while it’s probably true that the IRS is more interested in you paying your taxes than prosecuting you because that income may have been “illegitimate,” that doesn’t mean that other agencies might not be interested in the information you provide to the IRS. The FBI/DEA/DHS could easily get a hold of those records and use them to pursue an investigation.

and, yes, your tax returns can be used as evidence in court.

this is why money laundering (obfuscating the origin of illegitimate earnings to make them appear legitimate, esp for tax purposes) is such a lucrative trade.

my advice: never volunteer information which could later be used against you.

TotesIllegit ,

Tax evasion on top of the other illegal activity can increase the consequences if you’re caught. They tend to require warrants before divulging information to other authorities, however any information gathered through legal means can be used against you.

The main benefit of reporting the income is to reduce the likelihood that somebody gets suspicious of the change in buying habits and starts in investigation in the first place.

Delphia ,

Now I’m not American but I did read something about this before but I’m quoting from memory… huge grains of salt to be taken with this.

Essentially I believe you can report it as “other income” not specify a source and refuse to elaborate if questioned or plead the 5th if it goes more serious. So in a way you are protected. They have to PROVE you got the money from committing a crime… “I’m just a lucky gambler”. Im pretty sure Whitey Bulger used to pay 30% more than a winning lottery ticket was worth to people so he could cash the ticket and justify his wealth.

I cant imagine the FBI are trawling tax returns, but if you hit their radar for some reason it will probably flag you as someone to be looked at. Just remember, tax evasion is how they got Al Capone but money laundering is also a crime so which one would you rather fuck with?

Kidplayer_666 ,

I think there’s only a camp on the IRS forms for illegal activity because some random criminal was charged with something and then tax evasion. He successfully argued it couldn’t be tax evasion cause there was no field for it and if he put it elsewhere, it would be fraud

Aatube ,

I'm pretty sure they added the field specifically to catch Al Capone for tax evasion

Anticorp ,

I’ve never heard someone refer to the most successful and famous prohibition era mobster as “some random criminal” before. That criminal was named Al Capone. He controlled all of Chicago, and smuggling routes to many other major US cities. There are several books, TV shows, and movies made after the story of his life.

makeshiftreaper ,

American tax forms have an “other income” field. That’s where you can report any money you’ve made not covered by the other fields including any ill gotten gains. That section doesn’t require you to list a source, and even if it did nobody expects you to list “$7,800 - meth sales, $32,200 - crack sales, $50,000 - robberies”. You’d just say “Other income - $90,000”

The logic being that if the government never gives you the opportunity to pay taxes on something, then they can’t charge you with tax evasion. Plus there’s a lot of money in crime! If the US can get a piece of that pie they will!

Finally, the IRS is an already underfunded organization and contrary to the popular narrative, is very easy to work with. If you make a genuine good faith effort to pay your taxes and they find issues, an agent will work with you to resolve it. They’ll set up payment plans, defer payments, and more if you’re cooperative. All this is to say that reporting people for crimes besides tax ones and terrorism (the only one they’re legally required to report to outside agencies) just makes their job harder, so they don’t

PhlubbaDubba ,

Not to be flippant but how in sam hill do you uncover crimes of terrorism through tax filings‽

adespoton ,

Terrorists need funding. Doing so is illegal, and can show up in tax filings.

makeshiftreaper ,

I mean if you’re stupid enough you could try to claim a donation to the Taliban as charitable contribution for a deduction. And never underestimate the stupidity of people

Boozilla ,
@Boozilla@lemmy.world avatar

Always remember: law enforcement is legally allowed to lie to you, you are not legally allowed to lie to them.

Do you really need to know anything else?

thermal_shock ,

it’s also only illegal if you get caught, tree falls in the woods scenario.

Tramort ,

Short answer: no

Longer answer: if it were that simple, then money laundering would not be a billion dollar industry.

NeptuneOrbit ,

You would need to weigh the cost of

The IRS realizing their is un-reported or misrepresented income

Vs

The IRS reporting legally reported but otherwise suspicious income to the FBI or DEA OR whatever

satanmat ,

It is not a safe option.

It is designed as a catch all.

The FBI isn’t going through tax returns looking for Illegal income; rather if you’re suspected of illegal activity, they WILL go through your tax returns, because if you didn’t report your illegal income that is another law you’ve then broken. — See Al Capone

So. It is both a very bad idea, and a good idea to report your illegal income

A better idea is to not do anything illegal; or at least do the illegal thing offshore and hide the income there. Like a good multinational corporation would.

Modern_medicine_isnt ,

What you need to do is report your illegal income in a legal way. Like say you are a life coach, and you advise people.

Potatos_are_not_friends ,

If it looks extremely questionable, like you’re a life coach in Alabama and made 380k, it’ll raise a lot of flags.

  • Do you have a paper trail?
  • who pays for life coaching in cash? And 100% of customers?
  • Life coaching in Alabama and you made that much? " Is there also some business presence like a website?

There’s more things to consider. I say that as a person who has to set up my own company to protect myself when I got freelance clients, and complicated the hell out of my taxes.

slumlordthanatos ,

That is a pretty good explanation of money laundering, actually.

Kolanaki ,
@Kolanaki@yiffit.net avatar

Probably why fronts are often restaurants. They would have lots of money going in both ways.

Maeve ,

Or car washes? Night clubs maybe.

kmartburrito ,

There’s always money in the banana stand

jpeps ,

Laser tag is actually the best option.

Maeve ,

Oh?

ArmokGoB ,

I was looking into doing some mutual “consultant work” with a friend to make it look like I had an income. The taxes wouldn’t have made it viable though.

LodeMike ,

Would that not be illegal under the fifth or does the right for congress to collect taxes override that?

FalseMyrmidon ,

You can only plead the 5th while you're in court. Prosectors are free to use all the shady crap you did that they have evidence of in building a case against you though.

LodeMike ,

Hi that is not true.

satanmat ,

Oooh. I like that.

I’d think that courts would say that you can’t claim the fifth, since you self reported the illegal income. And that had you failed to claim it, you’d be evading taxes….

So yes. You COULD claim your 5th amendment rights against self incrimination, but then you’ve violated the 16th where you’ve failed to declare income.

LodeMike ,

Yeah that’s what I was thinking. Thank you.

Fedizen ,

you need to launder your money

BackOnMyBS OP ,
@BackOnMyBS@lemmy.autism.place avatar

well, not me necessarily. if i was doing some illegal business, i wouldnt be posting a question about it. but, i get the point 🙂👍

Bezzelbob ,
@Bezzelbob@lemmy.world avatar

Yes, hypothetically, according to this show i just watched, the best way to launder would be a cash only (or primary) business such as strip clubs, casinos, etc. Or you can simply create any business and make it cash only like a bakery.

That way its much harder to link because there won’t be any bank records to say otherwise

lud ,

Try car washes

RBWells ,

It’s more like if you get caught making money illegally and haven’t paid taxes on it, you are also in trouble for tax fraud on top of your other trouble.

wildcardology ,

Here’s a comprehensive list of what you should report as income to the IRS and yes it includes illegal activities and stolen property.

www.irs.gov/publications/p525#en_US_2023_publink1…

Maeve ,

It was the tax man that brought down Capone.

XeroxCool ,

For tax evasion, not for the illegal nature of his income

Maeve ,

Of course!

treadful ,
@treadful@lemmy.zip avatar

This is a conversation to have with a lawyer.

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