As nearly all American adults know and fear, Monday, April 15 is Tax Day. Every year, taxpayers gather together every government-required tax return and any random receipt that might result in a modest deduction from the amount they are required to pay .
The IRS wants taxpayers to know that if you made money last year from something illegal — stealing, selling illegal drugs, taking bribes — then that, too, is taxable.
Last year, Americans spent 6.5 billion hours paying taxes, which translates to about $260 billion in lost productivity. Added to this is the $104 billion spent in direct costs for filing and preparing tax documents.
Much of this complexity arises from the amount of deductions and exclusions allowed by tax law, as well as the types of income needed to be treated as taxable income.
IRS Publication 17 “covers the general rules for filing a federal income tax return.” In its most recent edition, the IRS advises: “Income from illegal activities, such as money from selling illegal drugs, should be included in income on Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment business.”
In other words, even if you engage in activities that the federal government is completely against, like selling heroin on the corner, Uncle Sam still expects you to raise a percentage.
The IRS notice also includes a section on “stolen property,” which similarly warns: “If you steal property, you must report its fair market value in your income in the year you steal it, unless does not return it to the rightful owner in the same year.”
Returning a stolen item won’t prevent you from being prosecuted for theft, so it’s nice to know that the IRS will at least give you a pass on the tax implications.
Ultimately, the IRS guidelines perfectly sum up how patently absurd much of the tax code is. In a separate notice, the agency advises filers to “retain records indefinitely if you fail to file a return” or “if you file a fraudulent return.” This is because if you fail to file a return or if you file a fraudulent return, there is no statute of limitations and the IRS could prosecute you at any time in the future.
The rule dates back to the days of Prohibition: when the authorities could not link the gangster Al Capone to any of his illegal business – bootlegging, gambling, murder – they prosecuted and convicted him of tax evasion for failing to declare his income.
Let this be a lesson to you reprobates out there: If only Capone had reported his racketeering income and kept his tax returns forever, he could have gotten away with it.