45 ms·

IRS guidance for thieves, drug dealers, and corrupt officials

311 points by reese_john 6y ago

imwillofficial 6y ago
This was an awesome, informative, and concise read. I’d like more like this.
diplodocusaur 6y ago
https://en.wikipedia.org/wiki/Al_Capone#Tax_evasion https://en.wikipedia.org/wiki/Al_Capone#Tax_evasion
lifeisstillgood 6y ago
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.
- bob1029 6y ago
  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.
- jandrese 6y ago
  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.
  - BitwiseFool 6y ago
    If the government wants you imprisoned they'll find a way.
- closeparen 6y ago
  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.
  - jcpham2 6y ago
    Speculation on a fictional universe, super
    - closeparen 6y ago
      Money laundering happens in this universe too.
jedberg 6y ago
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.
- cperciva 6y ago
  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...
  - jedberg 6y ago
    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.
    - ivalm 6y ago
      If you didn’t claim depreciation previously then why is it depreciated?
      - jedberg 6y ago
        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.
        sokoloff 6y ago
        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.
skot9000 6y ago
With this you can get busted for stealing _and_ not paying taxes on the fair market value.
onetimemanytime 6y ago
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:)
- yesco 6y ago
  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 https://en.wikipedia.org/wiki/Parallel_construction
croshan 6y ago
"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.
- bzbarsky 6y ago
  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_publink1000225212 https://www.irs.gov/publications/p547#en_US_2020_publink1000... has links you can chase if you really want.
calderarrow 6y ago
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 https://www.law.cornell.edu/uscode/text/26/7872
- heavenlyblue 6y ago
  Wouldn’t your friends then end up in jail? Or is that the type of crime that is not prosecuted unless “charges are pressed”?
  - calderarrow 6y ago
    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 ;)
    - alien_ 6y ago
      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?
      - 6y ago
29athrowaway 6y ago
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?
gumby 6y ago
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.
- csomar 6y ago
  > 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 :)
  - voxic11 6y ago
    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-government-s-use-of-tax-returns-at-trial/_res/id=Attachments/index=0/070051534Morvillo.pdf https://www.maglaw.com/publications/articles/2015-05-21-the-...
csomar 6y ago
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.
- R0b0t1 6y ago
  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.
  - Spivak 6y ago
    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.
    - masklinn 6y ago
      > 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.
drummer 6y ago
The IRS itself are thieves and corrupt officials.
mmhsieh 6y ago
does income derived from tax evasion have to be reported? not joking.
- antisthenes 6y ago
  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.
  - __blockcipher__ 6y ago
    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.
- geofft 6y ago
  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.
  - nullc 6y ago
    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.)
oh_sigh 6y ago
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.
- CodesInChaos 6y ago
  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.
- closeparen 6y ago
  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.
dyingkneepad 6y ago
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.
namank 6y ago
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.)
- __blockcipher__ 6y ago
  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.
  - TwoBit 6y ago
    > way to have an excuse to throw someone in jail More like: "way to have another means to put a criminal in prison."
hellbannedguy 6y ago
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.)
mbostleman 6y ago
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.
- csw-001 6y ago
  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.
  - gwbas1c 6y ago
    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.
- toomanybeersies 6y ago
  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).
frongpik 6y ago
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)?
- gwbas1c 6y ago
  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.
- vmception 6y ago
  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)
hrasyid 6y ago
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 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?
isbvhodnvemrwvn 6y ago
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.
- lordnacho 6y ago
  Couldn't you claim you work on the web?
  - isbvhodnvemrwvn 6y ago
    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.
- abeyer 6y ago
  > 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.
- slim 6y ago
  what's the reasoning behind prostitution being non taxable?
11thEarlOfMar 6y ago
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-tax/index.html https://money.cnn.com/2013/02/28/news/economy/illegal-income...
jariel 6y ago
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?
lizardmancan 6y ago
technically we can have every cent tracable and accounted for but that would give to much power to productive people.
trhway 6y ago
>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#Exceptions 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. "
- bzbarsky 6y ago
  > Also, what if the expenses are larger than the income? See IRS publication 536: Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.
amelius 6y ago
These types of criminals usually have enough money to pay someone to do their taxes.
SMAAART 6y ago
Is this an April fool +1?
Iv 6y ago
"Was this page helpful to you? Yes/No" Nice try.
matt-attack 6y ago
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?
- webmaven 6y ago
  > 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.
  - matt-attack 6y ago
    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.
    - SilasX 6y ago
      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.
      - webmaven 6y ago
        And of course, the evidence only needs to be strong enough to convince a judge there is enough probable cause to issue a warrant.
chakhs 6y ago
So you can be a hitman, but as long as you pay taxes you're a good citizen
contradistinct 6y ago
Idea for criminals: Anonymous tax payment service. I am a regular person with a bitcoin wallet. You are a criminal with a bitcoin wallet. You want to pay taxes on your crime money, but don't want to get caught for doing crime. So, instead of reporting the income on your own taxes, you send me bitcoin anonymously equal to the taxes you owe (plus a small fee). I declare and pay the taxes through my own tax returns. Then, if you are ever accused of not paying taxes on your crime money, you can prove you have been paying taxes by showing you own the bitcoin wallet that sent me the money. But, until the government catches on to your illegal activity, you get to stay anonymous without tax reporting tipping off the police etc.

311 points by reese_john 6y ago

imwillofficial 6y ago

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

diplodocusaur 6y ago

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

lifeisstillgood 6y ago

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.

bob1029 6y ago
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.
jandrese 6y ago
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.
- BitwiseFool 6y ago
  If the government wants you imprisoned they'll find a way.
closeparen 6y ago
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.
- jcpham2 6y ago
  Speculation on a fictional universe, super
  - closeparen 6y ago
    Money laundering happens in this universe too.

jedberg 6y ago

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.

cperciva 6y ago
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...
- jedberg 6y ago
  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.
  - ivalm 6y ago
    If you didn’t claim depreciation previously then why is it depreciated?
    - jedberg 6y ago
      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.
      - sokoloff 6y ago
        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.

skot9000 6y ago

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

onetimemanytime 6y ago

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:)

yesco 6y ago
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 https://en.wikipedia.org/wiki/Parallel_construction

croshan 6y ago

"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.

bzbarsky 6y ago
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_publink1000225212 https://www.irs.gov/publications/p547#en_US_2020_publink1000... has links you can chase if you really want.

calderarrow 6y ago

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 https://www.law.cornell.edu/uscode/text/26/7872

heavenlyblue 6y ago
Wouldn’t your friends then end up in jail? Or is that the type of crime that is not prosecuted unless “charges are pressed”?
- calderarrow 6y ago
  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 ;)
  - alien_ 6y ago
    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?
    - 6y ago

29athrowaway 6y ago

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?

gumby 6y ago

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.

csomar 6y ago
> 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 :)
- voxic11 6y ago
  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-government-s-use-of-tax-returns-at-trial/_res/id=Attachments/index=0/070051534Morvillo.pdf https://www.maglaw.com/publications/articles/2015-05-21-the-...

csomar 6y ago

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.

R0b0t1 6y ago
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.
- Spivak 6y ago
  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.
  - masklinn 6y ago
    > 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.

drummer 6y ago

The IRS itself are thieves and corrupt officials.

mmhsieh 6y ago

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

antisthenes 6y ago
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.
- __blockcipher__ 6y ago
  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.
geofft 6y ago
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.
- nullc 6y ago
  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.)

oh_sigh 6y ago

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.

CodesInChaos 6y ago
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.
closeparen 6y ago
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.

dyingkneepad 6y ago

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.

namank 6y ago

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.)

__blockcipher__ 6y ago
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.
- TwoBit 6y ago
  > way to have an excuse to throw someone in jail More like: "way to have another means to put a criminal in prison."

hellbannedguy 6y ago

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.)

mbostleman 6y ago

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.

csw-001 6y ago
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.
- gwbas1c 6y ago
  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.
toomanybeersies 6y ago
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).

frongpik 6y ago

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)?

gwbas1c 6y ago
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.
vmception 6y ago
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)

hrasyid 6y ago

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 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?

isbvhodnvemrwvn 6y ago

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.

lordnacho 6y ago
Couldn't you claim you work on the web?
- isbvhodnvemrwvn 6y ago
  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.
abeyer 6y ago
> 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.
slim 6y ago
what's the reasoning behind prostitution being non taxable?

11thEarlOfMar 6y ago

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-tax/index.html https://money.cnn.com/2013/02/28/news/economy/illegal-income...

jariel 6y ago

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?

lizardmancan 6y ago

technically we can have every cent tracable and accounted for but that would give to much power to productive people.

trhway 6y ago

>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#Exceptions 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. "

bzbarsky 6y ago
> Also, what if the expenses are larger than the income? See IRS publication 536: Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.

amelius 6y ago

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

SMAAART 6y ago

Is this an April fool +1?

Iv 6y ago

"Was this page helpful to you? Yes/No" Nice try.

matt-attack 6y ago

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?

webmaven 6y ago
> 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.
- matt-attack 6y ago
  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.
  - SilasX 6y ago
    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.
    - webmaven 6y ago
      And of course, the evidence only needs to be strong enough to convince a judge there is enough probable cause to issue a warrant.

chakhs 6y ago

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

contradistinct 6y ago

Idea for criminals: Anonymous tax payment service. I am a regular person with a bitcoin wallet. You are a criminal with a bitcoin wallet. You want to pay taxes on your crime money, but don't want to get caught for doing crime. So, instead of reporting the income on your own taxes, you send me bitcoin anonymously equal to the taxes you owe (plus a small fee). I declare and pay the taxes through my own tax returns. Then, if you are ever accused of not paying taxes on your crime money, you can prove you have been paying taxes by showing you own the bitcoin wallet that sent me the money. But, until the government catches on to your illegal activity, you get to stay anonymous without tax reporting tipping off the police etc.