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Comment by Pyxl101 | Hacker News Reader

> Like if you deal drugs, you will also evade taxes.

Not necessarily. You could choose to pay taxes on that income to the IRS. The IRS provides a way to report illegal income and pay taxes on it.

https://www.irs.gov/publications/p17

> Illegal activities. Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.

Does anyone pay taxes on income from illegal drugs? Probably not "street dealers", but I would suspect people who earn income from marijuana businesses that are legal in some states but illegal federally probably do pay tax on that income.

Furthermore, IRS tax returns are confidential. The IRS is generally prohibited from tipping off police about reported illegal income, though there are various loopholes: https://money.cnn.com/2013/02/28/news/economy/illegal-income...

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I get it, but let's see: don't declare it and you may get a pass. Declare it and you're certainly going to jail for longer than tax evasion.

Ask Capone how that worked for him.

Well, he got sick but for average Capone it beats doing 20 to life for other stuff.

Edit: are you really suggested that people like John Gotti and El Chapo declare income from criminal activities and detail how they made that once audited?

Stop engaging in criminal activities, I get as advice, but confess to the feds, I don't.

>Edit: are you really suggested that people like John Gotti and El Chapo declare income from criminal activities and detail how they made that once audited

No, I'm suggesting one of the examples used in your premise is wrong. The legality of income has nothing to do with paying your taxes from the IRS's perspective.

I totally understand. BUT if I am going to kill a person, illegal possession of a weapon is the least of my worries. Drug dealers are in that line of business. If you want to stay doing that, declaring income is not smart. That was my point.

> Declare it and you're certainly going to jail for longer than tax evasion.

The lines you include it in are general income lines, no explanation of the income is expected or required. It's not like there is a separate line item for illegal activities. So, no, you aren't certainly going to jail if you report it.

So IRS is just gonna accept that you made $241,000 and just that dealing drugs? Tax return is step one, if red flags are raised, it's audit time with explanations, witnesses, ledgers etc. If you got caught or want to leave the profession, it's another thing, come clean. No doubt in my mind that agencies talk to each other, formally or informally.

> So IRS is just gonna accept that you made $241,000 and just that dealing drugs

No, they are going to accept that you made $241,000 in regular income from sources that do not provide W-2s, 1099s, etc. The “dealing drugs” part is not part of the filing.

> Tax return is step one, if red flags are raised, it's audit time with explanations, witnesses, ledgers etc.

Red flags are more likely to be raised by living beyond the means suggested by your reported income as by reporting income with no apparent source; IRS audits and investigations are looking for evidence of concealed income or other evasion of tax liability, not satisfying curiosity about the sources of reported income otherwise, and the Fifth Amendment right against self-incrimination applies.

It's true that laundering money so that you can avoid both reported income with no apparent source and living beyond the means of your reported income is a common technique (though still technically usually tax evasion, since it usually involves concealing some part of the gross income which is expended in the scheme, and that income is taxable and you cannot deduct illegal expenses against illegal income, so the cost of laundering is not deductible.)

> No doubt in my mind that agencies talk to each other, formally or informally.

Well, they certainly coordinate in the direction that gets criminals who conceal the details of their other crimes well enough to complicate prosecution but evade taxation busted for the tax offenses. The direction you are concerned about is less evident, though.

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