IRS guidance for thieves, drug dealers, and corrupt officials | Hacker News Reader

IRS guidance for thieves, drug dealers, and corrupt officials

taxfoundation.org

311 pointsreese_john280 comments

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

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

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 ;)

Yeah, the way I read it this allows them to prosecute tax evasion in addition to theft for all property stolen in the previous years that wasn't declared to IRS as income from illegal activities.

Is that a common practice?

It has been used several times against organized crime, most famously against Al Capone.

You can't prove they did anything illegal to profit, but the IRS can audit them and prove they have not paid taxes on all their assets.

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.

> 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.

You might as well have declared your location to be San Francisco Bay Area.

True in Seattle as well, and Portland too from what friends tell me but I don't have first hand knowledge of that one.

Had my wallet stolen at a community rec center in the Northgate area (a few miles north of downtown Seattle for those unfamiliar). There was video of the thief taking it. I was able to find out from regulars his name + phone number + address, from which I found his facebook account with several public pictures of him that made it clear he was the same man from the security video. Also was able to find some public police reports of prior arrests of the same man on various counts of theft/larceny, although no convictions that I could find. Gave all of that information to the "detective" assigned to my case. Nothing ever came of it. As best I can tell, nobody did anything beyond write down some of the information I gave them.

It's not even an urban thing. I used to live in Woodinville, across the lake from Seattle, which for the uninitiated is one of those vast suburban sprawls with a Starbucks and a Mongolian Grill in the middle. Someone broke into my car and stole my wife's purse, and we tried contacting the police for hours to file a report. Their office was closed in the middle of the day, the person who answered their phone wouldn't connect us to anyone, and we finally ended up following a cop car to a sandwich shop and flagging the driver down when he got out.

Someone did eventually take it seriously when the thief stole thousands of dollars from a series of banks with my wife's checkbook. I guess cash is king.

Also anywhere in the Netherlands

It also describes the New York City I grew up in. Total apathy on the part of the police to most crime, and definitely toward property crime.

Hahaha, nope. Not in any of the major tech hubs. I think it’s true in most cities.

https://ucr.fbi.gov/crime-in-the-u.s/2017/crime-in-the-u.s.-...

Property crimes typically have a 10-20% clearance rate. Police are too preoccupied writing traffic tickets and/or harassing poor people. If anything, reported property crimes track against unemployment/economic prosperity-- probably much stronger than police payroll.

The FBI's UCR is even more accessible at https://crime-data-explorer.app.cloud.gov/ -- where you can look at crime rates, clearance rates, types of crime all the way down to the municipality level.

I've lived in places where cops don't even show up for theft and burglary. If you want a police report, you're visiting the station where they begrudging take your report and roll their eyes at any implication that they should investigate the crime or look for whoever committed it.

What were the biggest line items on those municipalities' budgets? Police salaries, benefits, pensions and the purchasing and maintenance of law enforcement equipment and assets.

If you visit the police departments' Facebook pages, they frequently celebrate months long investigations on literal children who sell pot to their friends. There's apparently no time to solve potentially difficult-to-investigate crime when there are easy targets out there like kids smoking pot and people speeding.

> 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!).

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.

I mean, we talk occasionally about the "negative interest rate" of owning gold, ie, the cost of securing it against theft.

And you provided that service for free!

...by stealing it.

I love the irony.

> 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).

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.

The lifetime gift exemption is more than $10 million dollars, so unless you are really doing a lot of gifting back and forth then you are unlikely to run into that.

Hahahah it's like 3500 euro's in Europe. cries in socialism

Not at all true in this generality.

Germany allows a few 100k tax free every 10 years depending on the exact relationship.

+ "Usual" Christmas / birthday / marriage gifts etc which can be substantial

Given that most people will eagerly "gift" most money paid for services, is this a bad thing?

That's not correct - you can only gift up to $15000 a year.

ref: https://www.nerdwallet.com/article/taxes/gift-tax-rate#:~:te....

"Two things keep the IRS’ hands out of most people's candy dish: the $15,000 annual exclusion in 2020 and 2021, and the $11.58 million lifetime exclusion in 2020 ($11.7 million in 2021). Stay below those and you can be generous under the radar. Go above, and you'll have to fill out a gift tax form when filing returns — but you still might avoid having to pay any gift tax."

If you are transferring more than $10k at a time, your bank will have to file "is this a terrorist?" Paperwork with the government. So you should definitely do this A LOT to make them rifle through too much false flags.

That is close, but not quite correct. You can gift <= $15000 per year without reporting it. You can gift > $15000 federal tax-free (state tax may apply), but must report it. Reporting it doesn't incur federal taxes until your lifetime gift total exceeds your lifetime gift exclusion of $11,700,000 (2021).

You can gift $15,000 per person, per year, without counting against the exemption. If you go above that you start to chip into the massive lifetime exemption.

Unless you have a net worth way above $10 million dollars you don't need to worry about the gift tax. If you accidentally forgot to report a $30,000 "loan" that turns into a gift to a friend, the IRS isn't going to care. You might have to go back and fix it if they notice but it isn't going to be a problem.

The gift tax exists to prevent extremely rich people from cheating the estate tax. If you've never heard of the gift tax before you don't need to worry about.

It's $15,000 to avoid filing a gift tax return. Anything over comes out of your 10 million dollar lifetime exemption though, so you're still never going to have to pay anything.

If you have enough money to have this problem, you have enough money to trivially bypass this problem.

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!)

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.

Same with Islam and Christianity.

Not true with Islam. Many Hadiths warn against using loopholes, there's no "tricking" God in Islam.

Nonetheless there is a widely used system of loans which use a fixed fee rather than interest payments which for fixed-term loans ends up being functionally identical.

That doesn't make them Islamic, as a matter of fact, many scholars have spoken out against them.

it is islamic, you just believe it is heterodox. just like any religion, there is not one true islam, but an intertwined cluster of sometimes contradictory cultural practices.

Not true. Scholars can differ on the meaning of certain texts, but all the scholars do their best to follow said texts to the best of their understanding, without retorting to loopholes because those are prohibited.

you: "these are loopholes. these other people say so."

them: "these are not loopholes. these other people say so."

all divine authority is mediated by men.

The difference is that "them" are not scholars. We don't give credibility to any random person that attempts to derive jurisdiction.

yes, but different scholars come to different conclusions, resulting in many islams

Not true. Islam inherently encompasses different points of view, as long as they are based on correct and proper evidence. Of course, this is not a blanket statement, since there are core immutable concepts in Islam, the "roots" to to speak. Minor things can have differing views as long as they are based on evidence.

It's so fascinating. There is no tricking God in Judaism either, but in a completely different way. Since God is by definition all-knowing, you cannot trick him by using a loophole. Rather, He put the loophole there for His own inscrutable purposes and you are not more or less holy for using it. (Unless it's a loophole in a holy text, then you are clearly more holy since you managed to find the loopholes that He himself put in there for the faithful to find)

The Islamic perspective is different. If something is prohibited, then there is no trying to get around the prohibition by stitching together a series of individually permitted transactions, such that the end result is a transaction that mimics the original prohibited one. The prohibition is because the act itself is impermissible, and hence, we are not to try to get around it.

Then the islamic students who we had here for an event 10 years sgo and refused ti eat pork but really liked to drink booze were full of shit when they answered "we are under a roof, god can't see here" when questioned about their drinking

Which Islamic students? One of the most basic tenants of Islam, known to even pre-elementary school children, is that God is Omniscient. If what you're saying is really true, then they're ignorant and/or foolish.

Plus, this doesn't have anything to do with the original topic.

Muslims are real people, with the drives, desires and flaws of real people. The parent comment matches my experience too, my Muslim friends here in Australia will not touch pork at all, but love a bourbon and coke.

My Muslim friend doesn't practice but claims he still physically can't eat pork (or drink much) without getting sick because he never got used to it. We never tried to confirm this.

He doesn't practice or doesn't believe? If he doesn't believe in Islam then he's not a Muslim.

Isn't that personal? I don't want to ask.

And we never denied this. The original argument was that whether or not the religion permits loopholes. If a Muslim chooses not to follow particular teachings of Islam, that's on him, but not because there are "loopholes".

Nevertheless, there is an Islamic Banking industry that offers products which seem economically equivilent to a mortgage with interest, while being theologically different enough to attract some market participants.

Yes, I explained in my other post that many scholars have spoken about such "products". We take our religion from the Quran and Hadith and the understanding of the early generations (Companions and their followers). They didn't have such practices, so we disregard them because they're clearly trying to imitate Western banking practices that are based on usury and interest and other prohibited things in Islam (e.g. shorting, selling what you don't own, gambling, etc.).

Sometimes this concept is exemplified by the Oven of Akhnai story

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

which underscores the idea that (in rabbinic Judaism—clearly other currents divided over this very issue!) human institutions were given responsibility for interpreting the law, including in ways that create leniencies or apparent loopholes. Although there is probably a better story or example about loopholes in particular.

Baked goods that many people are eating this week for Passover might be a good example, because a fair amount of food chemistry has gone into making some of them fluffy and bread-like, while still not technically being chametz. The mainstream interpretation is that the criteria for being "leavened bread" were authoritatively identified and fixed by rabbinic tradition, and that, if you stay within those criteria, you're fine, even if you produce foods that are subjectively reminiscent of leavened bread.

https://www.allrecipes.com/gallery/passover-bread-recipes/

https://www.allrecipes.com/gallery/passover-cookies/

https://www.allrecipes.com/gallery/passover-cake-recipes/

Fun fact: the oven in question is referred to as תנור (tanur). I wondered if this is cognate with "tandoor", and it is, as both terms were borrowed from Persian.

https://en.wiktionary.org/wiki/%D7%AA%D7%A0%D7%95%D7%A8 https://en.wiktionary.org/wiki/tandoor

There's plenty of "Islamic banking" but I think there's lots of limitations (I think it often involved shared ownership, risk and profit sharing, etc).

There can be some products that truly avoid interest and have proper shared ownership and the like. However, they seem to be far and few between, and scholars have called them out.

This sounds like a good approach because it removes the possibility for consumer credit. In my opinion, you should only borrow money to make a profit on it.

> In my opinion, you should only borrow money to make a profit on it.

only monetary profit counts? i shouldn't borrow to buy something that makes my household more efficient, like a dishwasher?

Compared to saving for it and buying it outright? I think we all know why we should do in this situation.

you can only imagine one possible situation?

The situation was provided by gp, not imagined. The fact that saving instead of buying on credit is being downvoted says something poor about our country.

As someone who has a hard time not optimizing every dollar, I'm ill equipped to answer this question. I would not.

But borrowing money for a dishwasher can be the optimal use of your dollars, if you can use the amount elsewhere at a higher rate.

When interest rates are 0% (as they essentially are right now) you're losing money by not borrowing. Capital investments are good!

"Efficiency" is rarely an objective and well-measurable metric when it comes to household goods. For every good for which that seems to be the case, like a dishwasher, there are a hundred others that would fit the definition - special-purpose kitchen gadgets of all kinds (mixers, vegetable choppers, rice cookers, bread makers, sous vide machines, toasters...), not to mention robotic vacuum cleaners, electric toothbrushes, cup warmers, etc.

If "efficiency" in and of itself is sufficient to justify making a purchase with debt, you will quickly find all of your financial resources going to paying off debt service. Then you find that instead of your tools serving you, that you are instead spending your time serving your tools.

The way out is to only spend cash (or cash equivalent, i.e. to commit to paying your credit card bill in full each month) on items which cannot generate a measurable financial profit for you.

> 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.

Depends on how much money you have. I'm sure the extremely rich have ways around it and better loopholes to pick from.

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.

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

> 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.

Sorry, I should have specified felon rather than simply having a criminal record. Generally speaking any crime that carries a possible prison sentence over a year, though you're right that it can vary by state etc. And blackpowder guns and a few others aren't legally considered "firearms" by the ATF, so a felon can own them.

Which is why in The Dukes of Hazzard, Bo & Luke carried compound bows (with dynamite tied to the arrows!). Because they were moonshiners (a federal felony) they couldn't have guns.

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.

>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.

I've never understood how people view paying high taxes as a point of pride. Pay your taxes so violent men with guns don't throw you in a cage, sure. But to view it as a badge of honor when that money is half getting totally wasted and half very efficiently being used to kill people abroad...no, I'm not gonna applaud someone for pushing for more taxes.

Pay your taxes so that society can afford infrastructure that benefits everybody?

If it was being spent well I think a lot fewer people would complain.

A small fraction is spent on infrastructure.

The more we remove supermajority protections, the closer we move to 50% of the people thinking it isn't used well.

Not sure why you're being downvoted.

I think they're being downvoted, in part, because a lot of people here either assume it is being spent well, or justify it as a necessary evil.

What might be valuable would be for someone to whip up an app that allows you to input the taxes you paid and breaks it down by the federal budget. Kinda like a receipt, but for government.

I did it with a few odd items, once, and it was pretty interesting.

For example, I found that I paid $7/mo for each of our aircraft carriers and $0.02/mo for the president's salary and secret service protection.

It might help people gain better perspective where their money goes. I'm not quite sure why this kind of thing isn't mandatory, frankly. An itemized "bill" may change people's opinions on taxes, especially the most favorable.

I mean, this already exists - there are tons of sites that slice and dice US spending with nice visuals etc. etc. Sure, I didn't see an itemized "bill" on page 1 of Google, but such a thing would be insanely incomprehensible for most people given that if you itemized the budget down to the level of the president's secret service protection, you'd end up with millions of line items.

It doesn't have to be incomprehensible. Just diggable.

Click through to finer and finer granularity. Searchable.

It's just ("just") a data vis problem. I'd work on it but too busy.

Maybe for the future. Could be fun.

This is literally the first search result on DDG: https://www.usaspending.gov

> The more we remove supermajority protections, the closer we move to 50% of the people thinking it isn't used well

I assume you're talking -- primarily -- about the Senate and the filibuster? If so, you'll be pleased to hear the UK has managed OK for the last 400-500 years in having a parliament that can do _literally anything_ it wants with a majority of 1 person[0] including deciding to pick on a single person individually without trial and subject them to whatever it pleases[1].

[0] https://en.wikipedia.org/wiki/Parliamentary_sovereignty

[1] https://en.wikipedia.org/wiki/Bill_of_attainder

Not just the filibuster. The senate has eroded 60 vote rules on other things like confirmations. I think this is detrimental to the integrity of the system - how can a vote of less than 60 be used to ammend a rule requiring 60 or more? It's definitely a violation of the spirit of the law.

It might work for the UK, but the UK is quite different from the US. For one, the house of lords was supposed to represent the wealthy whereas the Senate is supposed to represent the states.

Secondly, there are far greater geographic distances and differences between the members of the country. This usually means there are great differences in needs and priorities. This was kind of the point of reserving most rights for the states. If using simple majority, the smaller and more rural states will eventually get tired of things being crammed down their throats. We are starting to see this already with an increasing number of sanctuary city/states and multiple topics.

Lastly, does it actually work well? It seems that almost 2/3rds of people in the UK think the rural areas are neglected.

http://www.thecommentator.com/article/7587/government_neglec...

Poor reasoning since the systems are so different, and intentionally so.

You need to see taxes as a monthly subscription that makes everything around you better. Unfortunately some of that stuff is bad investment, but you get to actually have a say in how that big pool of money is being spent, and it’s very transparent.

I agree that it's transparent. But, do you know anyone who believes they have any say in how that money gets spent? do votes matter in any way whatsoever? most of the money is spent at the federal level. is anyone happy with political outcomes? even the winning party? (even a house/senate controlled by the democrats or all republican, have a hard time passing the bills they want).

40% of GDP seems like a pretty large subscription charge. 40% of the avg person's salary would be over 20K per year.

I could see this model working better if all the states were individual countries that can tax and spend the way they want. but the system as set up in the US just doesn't seem to make anyone happy because there's way too many diverse opinions on what to spend it on and how much to tax.

I mean, yes? Do you believe that if there was no voting that the money would get spent in better ways?

40% is a lot, but also the vast majority of federal spending goes to the safety net: unemployment insurance, social security, Medicare, health services — these categories are each more than spending on defense.

Personally, though I’ve never had to rely on unemployment insurance, I’m definitely glad it exists!

The political arguments about spending are basically noise at the margins by comparison.

Defenese spending is much more than you think: it's not just the "defense" category, it's also department of energy, dept of veteran affairs, dept of homeland security, and there's other sections where defense spending comes from. All together it's a sizable chunk.

Social security (20%), medicare and medicaide (20%). unemployment is a very small part as far as i know.

Your numbers are technically correct since you only gave one significant figure, but you're still rounding off more than $300 billion and also forgetting to count almost $400 billion in smaller programs.

Out of $4.4 trillion:

Social security - $1 trillion - 23%

Medicare - $644 billion - 15%

Medicaid - $409 billion - 9%

SNAP, EITC, Unemployment, SSI and other Income Security Programs - $303 billion mandatory spending + $73 billion - 8%

That's about 55% of the total on various parts of the safety net.

[1] https://www.cbo.gov/publication/56324

you're talking to the wrong person, I personally think I'm not being taxed enough. I make absurd amounts of money while people are dying in the street (SF is the city with the highest number of homeless people I've seen in my life, and I've travelled the world)

You can solve this conundrum individually with donations: taxes would go contrary to your stated goal, as the destination of funds is not in your control

Let’s make all tax donation am I right?

Maybe, maybe not. But certainly things like specific targeted programs one should be.

Nothing whatsoever prevents you from voluntarily increasing your payments to the government, both federal and state, or even municipally in the form of donations. Yes, you can request that they take extra money and they will happily do so. So once you're done patting yourself on the back about how progressive minded you are, just pay more. It would however be nice if people who claim to feel the way you do didn't so often try to force others to be just as "generous" by throwing scorn on people's legal attempts at tax reduction.

He doesn't actually want his own taxes to go up, he wants taxes of other people in his bracket to go up. His own increased taxes is just a price he's willing to pay.

I don’t see how this would fix the problem? The issue is not how much I pay, it’s how much people pay in general.

can I make some guesses? are you single with no family, yet?

(correct me if i'm wrong) if you had a family to support, with the truely enormous financial costs that SF brings, I think you might change your opinion on this matter.

Why can't it be based on how much services you use? Lots of literature has been written on private law and it already operates this way on many private properties.

Because 5 year olds can't afford school fees.

If half is wasted and half is used to kill people abroad, how are they building roads, schooling children, and killing people domestically?

As soon as you get over that sort of hyperbolic cynicism, you may recognize that communities, through democracy, provide for such services as are necessary for a functioning society using taxes.

No, there’s no opt-out, as it’s impossible to stop you from ever using any of the amenities that come with the package that is “living in society”. If you are American, there are dozens of countries that will allow you to immigrate with relative ease if you believe they provide a better deal or have limited government in the way you envision.

If there are none to your liking, that’s maybe a clue that yours isn’t all that bad. There are many comparisons, across industries and countries, that allow you us to come up with a reasonable floor for the costs of providing some specific service. And western democratic governments, contrary to popular and tired complaints, do rather well.

Less than 15% goes to roads, schools, and (I assume you refer to when you sardonically say "killing people domestically) law enforcement.

You appear to have a high view of government spending, and that also seems to be because you're unaware of how it's spent and how it's wasted.

Yes, parent was being hyperbolic when they suggested 50% is wasted and 50% to kill people abroad. But I think you're serious that you believe the US government apparatus is somehow responsible with all of our money.

Sure, the government may waste "only" $500 of my dollars a year on asinine programs (like seeing if zebra fish get addicted to nicotine), but there is tremendous waste in how money is allocated, budgeted for, paid out to contractors, and used for assistance.

If you think we run a tight ship (we don't) or have no room for very serious improvement (we do), then I think maybe you're not aware of what's going on.

Please study this more.

I think you might have responded to the wrong comment - the one you responded to never claimed that there wasn't waste in government spending, nor did they claim that the government was a shining beacon of efficiency.

On a different note, something like "Please study this more" as an ending statement adds nothing constructive to a comment. It just comes off as smug and passive aggressive.

I responded to the correct comment: the one that effectively said, "if you don't like it you can leave," in response to their parent comment that suggested they're not enthused to be asked to pay more taxes while we have such waste. Perhaps I misunderstood their response, but I take offense to the suggestion that someone who criticizes government should leave instead of utilize the apparatus of democracy.

That sort of response smells of totalitarianism. If you find my suggestion that parent try to understand the flaws in our government's structure passive aggressive, but don't find their suggestion that their parent move to another country anything short of actively aggressive... I'm not sure how to respond.

There's nothing smug or passive about my statement. I do absolutely implore them to understand their government more thoroughly.

I'm sorry we can't see eye to eye on this. (And no, I'm not being passive aggressive or smug with this statement, either... or this one lol)

You seem not to put any attempt into seeing the value of government, many of its programs or its spending. You made fun of addiction studies on animals like a fox news host, with derision, bad faith and ignorance. And them you tell others to do their research.

Get humble.

> asinine programs (like seeing if zebra fish get addicted to nicotine)

Understanding the physiology of addiction in animal models is a step towards curing it in humans. It's anything but asinine.

Thank you for clarifying the value of the study.

If you don't want to pay taxes, waive your citizenship and move to Somalia.

Tax is optional, you just don't want to give up it's benefits.

The 'just move' argument doesn't work. People want to live here and improve the country at the same time. Likewise, someone may say to someone who advocates for higher taxes 'waive you citizenship and move to Sweden,' which is equally unfair

I think there's a point where it's reasonable to say that the goal they have is too far from where America exists now and they should give up and leave. Someone who wants to introduce a monarchy, for a random example that I expect is uncontroversial. And arguably, a society without taxes is also beyond that line.

> And arguably, a society without taxes is also beyond that line.

The argument is not for no taxes, the argument is that taxes are too high. Reducing taxes is definitely achievable.

This is what I think when I read about these libertarian paradises people want to build on a huge floating barge in the ocean.

Watch how fast they start radioing for the coast guard when the pirates start showing up.

I think the libertarians of all people would have an ample supply of munitions. I could see a libertarian offering a pirate safari

They wouldn't be able to maintain a sewer system or a public health infrastructure though so they'd probably all get cholera.

> They wouldn't be able to maintain a sewer system or a public health infrastructure though so they'd probably all get cholera.

But imagine the market for patent snake-oil medicines that would create! The business opportunities boggle the mind.

Keep moving the goal posts. All these things can be done (as they are generally done privately). The only thing Libertarians can't do is fight a total war.

Yes, they can be paid for by turning to piracy so you don't have to raise taxes.

https://www.npr.org/transcripts/771371881

Piracy can only happen in non-private properties.

or, see how fast the surviving citizenry starts raising a defense budget when the US Coast Guard doesn't show up

USA was created as a "libertarian paradise" with people renouncing citizenship and picking up guns to defend it.

It is not what it has become in the last 200 years. Modern society is very hard to revolt like this country was founded, but there are sprouts of it in the crypto community.

Somalia may be an overkill.

Florida, on the other hand, does not tax its residents, while still having roads, schools and police.

> Florida, on the other hand, does not tax its residents

Yes, it does.

It doesn’t happen to use a personal income tax, but it absolutely does tax it's population.

That being said, Florida's sales tax is less than that in New York and property tax is half of New York's.

The roads in Florida are generally better (and cheaper), schools are good [1] and Florida State University is ranked higher than SUNY [2].

[1] https://www.usnews.com/news/best-states/rankings/education

[2] https://www.usnews.com/best-colleges/florida-state-universit...

>waive citizenship Except you get a massive tax if you try to do this too

There's no such thing as "waiving" your citizenship. You have to renounce it. It's a complicated process that must be done in person, under oath, before a consular or diplomatic officer. And there's a bunch of paperwork.

Also, crucially, if you have not obtained citizenship elsewhere first, you will be a stateless person with no rights anywhere. So you can't just renounce your citizen and then move.

Also, it's irrevocable — if you change your mind, you can't get citizenship back except by immigrating the hard way (visa/green card track).

You may also owe an exit tax, depending on your recent income and current wealth. Oh, and it costs $2,350.

> you just don't want to give up it's benefits.

Your mistake is in assuming the tax is necessary for the benefits.

We know some roads would be built without a tax. The issue is that only roads that benefited the wealthy would get built. Taxes are required for equitable access to public infrastructure.

Taxes are what give the rest of your money value by giving USD an inherent demand. Thinking you're losing out is bad economics because you're forgetting everyone else also pays.

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.

You don't have to file in America either if you don't owe

You also aren't required to get your taxes right, which most jokes about "the government will jail you but let all the rich guys cheat" rely on. Ignorance is a defense in tax law.

That would basically be a flag raised over your house/apartment saying "IRS Please Audit Me"

I don't think this is correct by law. I'm pretty sure you're required to file a return if you earned any income in a fiscal year.

That being said, de facto you are correct. The CRA will chase you if they think you owe them money, but is happy never receiving your returns if they owe you money.

You may be right. This area is too complex for me to make a certain declaration about.

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

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."

> I love tax law

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

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

Not true, if you’re in a low tax bracket stock gains can be tax free. It’s worth it to “tax gain harvest” by selling your stock once a year and immediately rebuying it. Unlike with a loss, the gain always counts and your basis gets reset to the new buy price.

Good point! No capital gains if your income is in the lowest bracket.

Maybe this isn’t a major issue so the IRS hasn’t clamped down?

Exactly, the IRS doesn’t care about clamping down on people in the lowest bracket.

> 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).

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

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...

> 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.

> 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.

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

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.

Couldn't you claim you work on the web?

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.

> 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.

what's the reasoning behind prostitution being non taxable?

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

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.

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...

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.

If you didn’t claim depreciation previously then why is it depreciated?

The IRS says that the item depreciates whether you claim it or not. It is in your best interest to claim it, because when you sell the item, they assume the depreciated value.

This comes up when you own rental houses. If you sell the house later, they reduce the base price by the assumed depreciation of the structure, whether you took the deduction or not.

Tax code deducts from your basis in an item the "depreciation allowed or allowable".

For personal property [such as typically sold in a garage sale], there is no depreciation allowed or allowable, so your basis in the good is whatever you paid for it.

> This comes up when you own rental houses.

Yes, this is true, but there is a massive difference between a real estate investment, and a garage sale.

Time depreciates.

Unless you are selling a boat or a car at a garage sale you probably can't calculate depreciation. Typically only capital items can depreciate.

The IRS has a publication for that! https://www.irs.gov/pub/irs-pdf/p946.pdf

You can pretty much depreciate any physical object that wears out over time.

I want to see the guy who lists his Bic pens that he lets customers use to sign contracts. Yes, it has a limited lifetime. Yes it will last over a year. Yes you'll be audited if you claim depreciation on them.

You would probably just do a Section 179 on the entire bag in the year you purchased it, which would be totally legit.

Only ones that you use for business or income. Personal property used for non-buisness or income producing activities is not depreciable.

> To be depreciable, the property must meet all the fol-lowing requirements... It must be used in your business or income-producing activity

If you're selling at a garage sale it just became part of your income producing activity.

Even if you take this viewpoint, it still means you can't depreciate the item, because it wasn't part of your income producing activity until just that moment, which means the depreciation is zero, since depreciation can only be taken based on the time the item was used for your income producing activity.

That’s not what that means. That phrase is referring to you using an item as a tool to generate income. You could depreciate a desk that you work at, but not the one that your kids do their homework on. (Because homework is not an income generating activity)

You can, but why would you? Buying into the accounting-uber-alles paradigm only makes sense for business that can actually benefit by deducting the depreciation. Individual taxpayers get no such benefit, and therefore have no need to depreciate items. And without depreciation, yard sales consist chiefly of capital losses.

This is not my understanding of how the tax code works. If the garage sale is not part of a business and you are selling an item you used for less than you paid for it, you generally have no reportable income. Everything I could find online seems to agree, [1] for example.

Do you have any sources?

1. https://www.findlaw.com/tax/federal-taxes/do-you-need-to-rep...

The link you posted explains the difference between business income and hobby income. It just depends on how often you have a garage sale. Like everything with the IRS, it's complicated, and also they usually don't care with small amounts anyway.

Agreed. I think the parent is confusing it with the case where you buy an item for your business, depreciate it to zero (thus deducting its full value as an expense), and then later find out you can salvage some value on resale. In that case, you would have reportable/taxable income from that resale, which you can think of as “correcting the overdeduction for depreciation.”

Ok, maybe the US tax system is very different from the Canadian tax system, but I've never heard of someone claiming depreciation on personal use of children's toys.

why would you depreciate the assets to $0 when there's very good evidence that the assets do in fact have positive value?

in many countries assets value depreciate at a regualtory predefined annual rate till it reaches 0.

Coming from a country where that's not how it works it sounds quite strange. Does it apply to houses? Gold? Antiques?

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.

No one goes to jail for underreporting a small amount of income, like a weekend garage sale.

When the IRS figures out that you underreported something, they assume it's a minor mistake and send you a bill for the difference, plus minor interests.

And, as far as out-of-state sales tax... Who actually keeps a list around of all the trinkets that they bought out of state so they can pay the extra $10 of tax at the end of the year? There is a reason why big-box stores are located immediately on the tax-free side of a state line.

> No one goes to jail for underreporting a small amount of income, like a weekend garage sale.

Almost no one goes to jail for tax-related issues, period. Only about 600 people are convicted of tax fraud per year and they usually do so because of amounts of more than $100,000.[1] If the IRS finds discrepancies, they'll work with the taxpayer to pay the appropriate penalties. You have to be doing something particularly egregious to end up going to prison.

The IRS is not the big, bad bully that it is usually portrayed as.

[1] https://www.ussc.gov/sites/default/files/pdf/research-and-pu...

It's because taxes are so darn confusing, that it's assumed honest mistakes are just that.

Why are taxes confusing? To keep Turbotax in business!

Out of curiosity, what would be the right amount of tax fraud for the expected value to be positive?

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.

BTW that's true of income tax but not necessarily true of sales tax. Rules vary across the country but I've read about people getting in trouble for not remitting provincial sales taxes on garage sales.

(There's no GST/HST issues since (a) "used goods" are generally exempt, and (b) almost everyone running a garage sale falls under the "small supplier" rules < $30k/year.)

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.

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?"

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...

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.

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.

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.

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.

> 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.

While the second is perfectly fine, the first makes no sense. The confession is your report to the IRS. What you keep around is your problem and would be fair game, in the same way that the sacramental seal only applies the scope of the sacrament: if you confess, then say what you confessed within the priest's ear outside of confession the sacramental seal is void, to say nothing of writing it in your diary or shouting it from the rooftop.

It’s an interesting end-run around the fifth amendment. What if we passed a law that all criminals are required to keep a logbook of their crimes? Police can’t compel production of the logbook, but it can be used as evidence if found during a lawful search. Any crimes in the logbook will be prosecuted, as will the provable omission of any crimes.

> It’s an interesting end-run around the fifth amendment.

It isn't though. The fifth does not cover the production of incriminating documents (under a subpoena), to say nothing of the document being acquired through other means, except in the case where the production of the document is in and of itself (independent of the contents of the document) incriminating (the "Act of Production" Doctrine).

> What if we passed a law that all criminals are required to keep a logbook of their crimes?

That would be a breach of the fifth as it would legally require self-incrimination. And the only use would be additional charges: if you can't prove the initial crime you can't prove that there was a need for a logbook. So even beyond the fifth I don't think it would stand.

If it’s illegal to require authoring of this logbook, why is it legal to require authoring tax returns that contain records of illegal activity?

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.

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.

>> 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.

I was reading about this last night, not knowing about Leary vs. United States. The modern state tax stamp laws seem to get around the court's ruling/interpretation by allowing for the anonymous purchase of the stamps. Before the ruling and the 1970 Controlled Substances Act, the 1937 Marihuana Tax Act required dealers to register and implied their own self-incrimination.

The North Carolina Unauthorized Substance Tax Stamp [0] is one such. I met someone who worked for the Department of Revenue, and to his knowledge, the state has never sold a single one to an actual possessor of an unauthorized substance. Just to philatelists.

> If I purchase stamps will I then be in legal possession of the drugs?

> No, purchasing stamps only fulfills your civil unauthorized substance tax obligation. You will still be in violation of the criminal statues of North Carolina for possessing the drugs.

[0] https://www.ncdor.gov/taxes/unauthorized-substances-tax-info...

> Just to philatelists.

Interesting business. Stamp collectors are free to resell those stamps.

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.

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.

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.

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

Government agencies do not pay taxes.

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.

> 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 :)

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-...

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.

> 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.

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

Which is exactly why I carry it on in my backpack right along with all my medications and stuff.

From your carry-on?

"You can't have this, we're taking it" is already standard for oversized liquids in carry-on baggage. Are you gonna make a big fuss calling over a supervisor over something that's illegal at the Federal level?

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).

always reminds me, is the TSA's liquid carrying exemption for saline solution, or bottles that say saline solution?

There's a general exemption for personal care products. Has to be a small bottle and in a clear Ziploc bag or equivalent. (Rarely enforced, in my experience)

https://www.tsa.gov/travel/security-screening/liquids-rule

Unfortunately, I've had this enforced against me many times by the TSA.

I been barked at many times for water bottles standing in line—usually before the liquid dump station, which makes it even more grating.

On the other hand, I've accidentally left large bottles of contact solution in my bags more than once (when I expected to check a bag but ended up doing carryon, and forgot to repack the liquids), and never been stopped for it. 100% security theater

Back when the liquid ban was just getting started, I learned that Campbell's Chunky Chicken Corn Chowder was considered a liquid.

Yes, I carry a large bottle of saline for my contacts all the time. They test it by placing the bottle on a table, opening the top, then gently squeezing it while holding a test strip above the top (so nothing touches the liquid opening). Never have had an issue.

I’m glad to read they are actually testing now.

I’ve been doing this for about 12 years, and they’ve always been tested. They only test the bottles that exceed the regular liquid restrictions though.

For anyone unaware of this reference, Bruce Schneier once went through airport security with fake boarding passes and 24 ounces of saline solution that the TSA didn't even bother to inspect.

>Later, Schneier would carry two bottles labeled saline solution—24 ounces in total—through security. An officer asked him why he needed two bottles. “Two eyes,” he said. He was allowed to keep the bottles.

https://www.schneier.com/news/archives/2008/11/the_things_he...

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)

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.

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.

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.

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

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.

Speculation on a fictional universe, super

Money laundering happens in this universe too.

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.)

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.

> way to have an excuse to throw someone in jail

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

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...

"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.

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.

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?

> 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.

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.

What's missing is that, if the police independently discover evidence (well, "independently") of your being a drug kingpin, then they can subpoena your tax records and use them as further evidence. So it can end up being found by law enforcement and used against you.

And of course, the evidence only needs to be strong enough to convince a judge there is enough probable cause to issue a warrant.

There are lots of ways to get caught. If you want to buy a house, you either need a mortgage and will have to demonstrate income (which you probably can't), or you have to pay cash. Buying the kinds of houses that drug dealers buy in cash is going to draw a lot of attention that you don't want. Likewise with cars, or really any big purchases. Getting really nice season tickets to sporting events is going to be suspicious if no one can vet that you actually have a job.

Laundering the money is not instead of paying taxes, it's on top of paying taxes. The goal is to make it appear that you're a legitimate business person who makes their money from laundromats or whatever. If the police come snooping about how you can pay for your house or cars or tickets, you can just show them the books for your "business" as evidence that you really are just a regular Joe that runs a chain of laundromats.

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Nice try.

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

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

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.

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.

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.

>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. "

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

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

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.

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:)

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

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?

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)?

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.

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)

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?

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.

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.

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.

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).

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

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

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

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.

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.

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.

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.)

In a related story, we (my sharehouse) pay $5000 a month for rent in hard cash, and our landlord declares $2500 a month to the ATO.

As a back of napkin calculation, between her >=2 rental properties, and due to negative gearing, she's declaring a $60,000 loss per annum on her rental properties. Combined with the 50% deduction for capital gains on property sales, I don't think she will pay a single cent for the income earned from her rental property investments.

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?

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

Is this an April fool +1?

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

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?

The IRS itself are thieves and corrupt officials.

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.)

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