The IRS has released the federal income tax guide for tax filing in 2022. On an online list of requirements titled ‘Publication 17’, the IRS has listed illegal activities under “other income” and has reminded that stolen property, bribes and income related to criminal and illegal activities are required to be declared on your taxes.
In an updated special page, the IRS outlines the steps for tax filing which is set to commence two weeks early on January 24. The due date to file tax returns is April 18, 2022, as opposed to April 15.
“It is also important for taxpayers who received a Covid-19 Relief Economic Impact Payment last year or who got an advance Child Tax Credit payment to make sure they report the correct amount on their tax returns to avoid processing delays,” IRS Commissioner Chuck Rettig said.
With regard to stolen goods, the IRS states, “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.”
And don’t forget to report other ill-gotten gains such as income from bribes or kickbacks you took in the course of doing business. The kickbacks also go on Schedule 1 or Schedule C, while the IRS says bribes should simply be included in your income. It’s not just income obtained via illegal activities, if you find $10 on the street or that ladies bracelet you found in the night club of a hotel… yes, all these are taxable.
However, tax returns are confidential, and the IRS can’t share the information unless law enforcement has a case and gets a court order to get access to a taxpayer’s records.
“People who are convicted or expected to be convicted of embezzlement will report the income to avoid getting prosecuted for tax evasion on the proceeds,” Stephen Moskowitz, a San Francisco tax attorney, told NBC News.
California-based Indian American Ajay Joglekar said, “Government requires that you report all of your income — whether legitimate or not. In practice, it’s rare for those who break the law to then turn around and dutifully log their ill-gotten gains for the government to review. But there are exceptions.”
Another Greater New-York area based Indian American investment consultant, Rahul Diddi, said, “US taxes on the basis of worldwide income. All receipts by individuals are taxed. Stolen goods, bribes and casino earnings are all counted as receipts and hence are considered taxable.”
“A government which robs Peter to pay Paul can always depend on the support of Paul. It’s strange — backdoor legitimacy to illegal activities! — but it’s a fact not fiction. If you steal you must pay income tax on stolen property you keep. The IRS is clear about it: If you steal, we want our share, or you face tax evasion charges.
“So, it is a reminder for criminals that just because you got away with theft, bribe and illegal activity, it doesn’t mean the IRS isn’t going to come after your income,” he added.
However, the US Constitution states that no person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury. This is there in the Fifth Amendment, putting this IRS requirement in questionable vicinity. May be that’s the reason ill-gotten income is slotted into the “other income” category.
In 1927, the US Supreme Court, in Sullivan v. United States, 274 US 259 (1927) legal case, heard such a matter when a South Carolina liquor bootlegger was charged with tax evasion for not reporting his illegal earning. The bootlegger challenged his conviction arguing that to do so would be self-incrimination in violation of the Fifth Amendment guarantee. Justice Oliver Wendell Holmes rejected this argument that illegally acquired income is exempt from income tax.
Justice Holmes then addressed the question of self-incrimination saying, “…. It would be an extreme if not an extravagant application of the Fifth Amendment to say that it authorized a man to refuse to state the amount of his income because it had been made in crime.”
To this day, this court opinion still stands in the United States.
What is required to be filed:
- 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. The stolen property is under the Other Income rules.
- Bribes: If you receive a bribe, include it in your income.
- Illegal activities: Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment activity.
- Property found: If you find and keep property which does not belong to you that has been lost or abandoned, it’s taxable to you at its fair market value.
- Rewards: If you receive a reward for providing information, include it in your income.
- Alimony: Include in your income on Schedule 1 (Form 1040), line 2a, any taxable alimony payments you receive. Amounts you receive for child support aren’t income to you. Don’t include alimony you receive under a divorce or separation agreement (1) executed after 2018, or (d) executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification.
Currently based out of San Francisco Bay Area, Ashok Sharma is a freelance journalist. For over three decades he was on the news desks of prominent newspapers in Hong Kong, India, and the UAE
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