If a person steals property or makes money from illegal activities, the IRS requires taxpayers to report it on their income tax return.
Many Americans have received their W-2 forms to report legitimate income on their 2022 tax returns. But what to do with the illegally obtained benefit?
A viral tweet from a venture capital firm reminds people to report their “proceeds from illegal activities and stolen property” to the IRS.
Viewer James also asked, “Can you check if the IRS website actually says you have to report stolen property?”
Does the IRS require people to report the proceeds of stolen property and illegal activities?
Yes, the IRS does require people to report the proceeds of stolen property and illegal activities.
WHAT WE FOUND
The Internal Revenue Service (IRS) reports this on its website. that if a person steals property, he must “report its fair market value” as income – unless he returns it to its rightful owner within the same year.
Also, the IRS advises taxpayers on its website that any money received from illegal activities such as drug sales must be included in their income Form 1040, the same document used to record additional income such as winnings and unemployment benefits. But theft isn’t the only thing to report: bribes and kickbacks are also considered income, the IRS says. An IRS spokesman declined to comment further.
While a tweet about reporting stolen property to the IRS has gotten a lot of attention in recent weeks, tax officials and the federal government have been cracking down on criminals for more than 100 years. Congress passed Art Revenue Act, 1921which requires people to pay taxes on all income regardless of how it was earned.
United States v. Sullivanthe Prohibition-era Supreme Court case against a South Carolina bootlegger brought to the fore the federal government’s reporting of illegal proceeds. Based on the materials of the Mob Museum website, defendant Manley “Manny” Sullivan appealed his 1922 conviction for federal tax evasion for illegally selling whiskey. Sullivan argued that filing a proceeds of crime tax return violated his right against self-incrimination under The Fifth Amendment to the US Constitution.
This is evidenced by the records of the Supreme Court the federal government won the case in 1927, establishing a precedent that the Fifth Amendment does not protect a recipient of income derived from illegal activity from prosecution for failing to file a return under the income tax law.
The Supreme Court decision marked the beginning of the prosecution of mobster Al Capone in 1931, according to the Mob Museum. IRS officials estimated Capone’s income at more than $1 million between 1924 and 1929 and alleged that he evaded about $219,000 in federal taxes by not filing any returns.
Capone was convicted of tax evasion on October 18, 1931, and later sentenced to 11 years in federal prison, a $50,000 fine, and $7,692 in court costs, along with $215,000 plus back taxes. according to the FBI.
In 1994, the government also indicted Aldrich Ames, a 31-year veteran of the Central Intelligence Agency (CIA) who spent nearly a decade spying for the Russians, and his wife for tax evasion after they failed to declare nearly $2 million in payments from the Soviet Union, according to the FBI.
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