Posted: Sarah Nieschalk | May 6, 2016


The Taxable Underbelly of Criminal Activity


tax and crime

Obviously, any crime you might perpetrate entails a certain degree of risk. Hopefully, you'll never consider crossing over any legal boundaries. If you do, though, don't forget about the taxable consequences that could accompany any legal prosecution you might face.

There are a number of illegal activities that are either willfully neglectful of current tax laws or can indirectly result in complications with the IRS. In either case, it's critical to understand the full import of any tax matter that surfaces from criminal endeavors. While you're preparing your legal defense, you may also want to consider counsel specializing in all things tax-related. Your freedom and your wallet may just depend on it.

Dodging Taxes

It's one thing to make an error when it comes time to report your income; it's another matter entirely if you're willfully shirking your tax duties. Evading taxes is, in itself, a federal crime. Failing to report income to avoid paying taxes is not a practical maneuver for realizing a vast savings. If you're caught, don't expect any leniency from the IRS. The simple mistake of failing to file can carry a year in prison for every year you're missing.

Taxing Crime

Another, oft misunderstood, version of tax evasion occurs when you fail to report income from unlawful gains. Let's suppose that you earned $30,000 from illegal gun sales last year. When you file, this income must be included on your return in order for you to be compliant with reporting requirements. If you don't report it and you're eventually charged for your crime, you'll face additional charges and penalties from the IRS.

Reporting Logic

The way the IRS sees it, any income you earn is taxable. While it may seem counterintuitive to include earnings from drug dealing, weapons trafficking or just old-fashioned robberies, the basic reporting logic remains intact. Perhaps the most infamous example of this concept occurred when bootlegger and mob chieftain Alphonse Capone was sentenced to an astounding eleven years in prison in 1931 for federal income tax evasion.


Since you're required to not only report illegal earnings but also pay the appropriate amount in tax, any assessment made after the fact will be riddled with additional charges. As an example, an assessment of tax from income that should have been reported two years prior will include 24 months' worth of penalties and interest (these fees accrue monthly). The end result of your unlawful enterprise may include not only time behind bars, but a staggering bill to the federal government.

Making Amends

If you haven't yet committed a crime, you still have time to reverse course. Alternatively, if you've already violated the law, you'll want to consult with a qualified legal representative at once. As you're reviewing your case, don't forget about tax concerns connected to any ill-gotten gains. You'll need to catch up on reporting income and pay the associated tax to avoid additional acrimony with the IRS.


<--Back to Debt Blog                 Next Post: What to Do After You File for a Tax Extension -->


Top of Page keyboard_arrow_right

author image

Written by Sarah Nieschalk

Our goal, here at Best Company, is to provide you with honest, reliable information you need to find companies you can trust.

Compare the top ranked companies

Find the right company for you.