Believe it or not, it’s right there in the official I.R.S. tax instructions: “Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.”
Yup, the federal government wants criminals to report and be taxed on any money made through illegal means, according to CNN Money.
What’s even crazier is that some actually do it.
While most illegal income does go unreported, some criminals—mostly embezzlers—choose to report their shady gains when they think they’re going to be caught soon. That way, they can avoid being charged with two crimes: the first for the initial offense and again for evading taxes.
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You don’t have to report the details of your illegally obtained cash on your tax forms, but things can get tricky if it’s enough to prompt an audit. If there’s no paper trail—and criminals aren’t exactly known for keeping meticulous transaction records—I.R.S. agents will try to identify and contact other parties in your illegal scheme to verify your reported earnings.