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.<p>When I read these rules, I thought of a potentially amusing tax loophole with regards to the stolen property section:<p>>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.<p>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.<p>[0] <a href="https://www.law.cornell.edu/uscode/text/26/7872" rel="nofollow">https://www.law.cornell.edu/uscode/text/26/7872</a>
A semi-related thing - in Poland there is a law stating that income from prostitution is not taxable.<p>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:<p>- the family was asked whether the person was in fact a prostitute<p>- the tax payer was asked to specify where the services were performed<p>- 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<p>- 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)<p>- if they said they did this at home, the neighbors were interviewed whether the prostitution did in fact take place at home<p>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.<p>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.
Yep, if you're a drug dealer and you don't want them to get you on tax evasion, make sure you report it.<p>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.
This might seem surprising, but I think this makes sense. The IRS is out there to collect money, and should be <i>neutral</i> 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.<p>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.
What's important is that what the IRS learns this way should <i>not</i> be shared with other agencies. That should improve the level of tax collection. In fact information sharing would be an incentive <i>not</i> 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).<p>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.<p>As a general principle this seems to be poorly understood by both legislators and the general public.<p>Oh and PS: follow this same rule with your code.
So, Capone <i>could</i> 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.<p>I think even Saul from Breaking Bad would have struggled to sell that as a tactic.
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.)
That makes me ask the question: How much tax revenue does the IRS collect from illegal income each year?<p>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...<p>[0] <a href="https://money.cnn.com/2013/02/28/news/economy/illegal-income-tax/index.html" rel="nofollow">https://money.cnn.com/2013/02/28/news/economy/illegal-income...</a>
"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."<p>And from the inline link to IRS.gov:<p>"Theft losses are generally deductible in the year you discover the property was stolen"<p>That's nice to know, actually.
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?
Is there any better way to fund the government other than them inserting themselves in-between every transaction that occurs?<p>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.
>Stolen property. If you steal property, you must report its fair market value in your income in the year you steal it<p>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...<p>>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.<p>curiously, in case of machine gun registration the conclusion was different :<p><a href="https://en.wikipedia.org/wiki/National_Firearms_Act#Exceptions" rel="nofollow">https://en.wikipedia.org/wiki/National_Firearms_Act#Exceptio...</a><p>"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. "
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<p>If you sold drugs...might as well break tax laws too or you risk your profession:)
I wonder how the "without revealing its precise source" part works.
Probably it's this form, <a href="https://www.irs.gov/pub/irs-pdf/f1040s1.pdf" rel="nofollow">https://www.irs.gov/pub/irs-pdf/f1040s1.pdf</a> 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)?
Given so many high profile baddies go down on RICO cases, I wonder if these requirements are in support of this?<p>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?
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.<p>Now if you are basically insolvent, you can give them a letter, and a rudimentary asset/liability statement.<p>If you get the right (I guess in a good mood) IRS agent they will disavow the tax.<p>(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.)