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xCreamPye69 OP t1_j6fsa9m wrote

Reply to comment by mmmmmmBacon12345 in ELI5: Why does the IRS want your illegal income declared on tax returns? by xCreamPye69

> they really don't care

Is this true? What if you're a successful drug dealer/weapons smuggler and you reported an income of $20 million? Will they turn a blind eye as long as you file your taxes?

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nstickels t1_j6ft51s wrote

The IRS wouldn’t come after you for being a drug dealer/weapons smuggler. That doesn’t meant the DEA or ATF wouldn’t.

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xCreamPye69 OP t1_j6fthnh wrote

That's exactly what I mean. Wont the IRS just report you right away for having illegal sources of income? Why on earth would you do so?

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PerfectPercentage69 t1_j6fuatm wrote

It's a catch 22 that they have on purpose.

If you have an illegal source of income and don't report it, then IRS will come after you because they'll notice the discrepancy between your spending and reported income, so they'll have probable cause to search/arrest you. This will then give evidence for other federal agencies.

And if you report you illegal income, then IRS will be happy but the other federal agencies will come after you because now they know about it and have probable cause to search/arrest you.

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Any-Broccoli-3911 t1_j6fu3bo wrote

You just declare your income you don't declare the source.

If you want to face a source, you can do money laundering for that. The IRS doesn't care about the money being laundered or not, they just want you to declare the good amount.

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GenXCub t1_j6fxij3 wrote

That’s what money laundering is for. You claim to make money legally through a cash business, but it’s really your drug money. The IRS gets their taxes that way and you didn’t admit wrongdoing.

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IfIRepliedYouAreDumb t1_j6gwcnl wrote

Money laundering is NOT what they are talking about though. There is a section on the 1040 where they ask you to declare income from illegal activities.

Money that has been laundered would be filed under the section pertaining to however you laundered it.

OP is asking why they have that line there

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markroth69 t1_j6h889a wrote

Money from illegal activities: $0

Money from my, uh, consulting firm called Definitely Not an Extortion Racket: $1,000,000

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IfIRepliedYouAreDumb t1_j6h8s3y wrote

You’re still not getting it. He’s not asking HOW to launder money, he’s asking WHY that line is there. And it’s there as a way to tax federally illegal revenues.

Things like casinos and brothels have historically fallen under this category. I’m sure marijuana could too, if you want to be able to receive digital payments (which is why a lot of dispensaries are cash only).

Also that’s not how money laundering works, if you’re receiving payments like that the cash would have to be laundered before then.

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MisinformedGenius t1_j6gsnaq wrote

There's a lot of laws surrounding privacy for the IRS - they cannot just report you to other agencies. There was an exception put in for terrorism back, I think, in the Patriot Act, but in general, why would the IRS care? It's not like the DEA is going to pay them for tipping them off.

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mothman83 t1_j6g7qj6 wrote

No they are actually are banned from doing this based only on your declaration. Outright ( see note below)

​

HOWEVER as you can imagine the amount of big time crooks reporting their illegal income is ummm infinitesimally small, so most of the time this does help catch crooks.

​

NOTE: If you get audited, you do have to account for the source of all your income . If at that time the IRS sees evidence of a financial crime ( ie MONEY LAUNDERING) which... THEY WILL if you are a big time criminal operator... then they can thro you in jail for that as well.

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pdpi t1_j6gkjb7 wrote

You have to report your income, that’s the law. You obviously don’t want to report the profits you made from your criminal acts, but it would be extremely weird if the law carved out an exception for ill-gotten gains.

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MikeLinPA t1_j6gj3u6 wrote

Maybe people should have legal incomes and report it. Problem solved.

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2_short_Plancks t1_j6gxpup wrote

My wife used to work for the IRD in NZ (our version of the IRS in the US). They work under tax secrecy laws which supercede almost all other laws. They were literally not allowed to pass information to the police about illegal income, though they can demand information or assistance FROM the police.

Lots of illegal income would be declared, from drug money to money from prostitution (before it was decriminalized). Plenty of people wouldn't care about the cops coming after them, but wouldn't want to deal with IRD chasing them. At least here, IRD agents can enter your property without a warrant (accompanied by police), take all your stuff and have you arrested, in a way the police simply can't.

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djinbu t1_j6hnkcg wrote

The IRS isn't really a law enforcement agency. They are a financial agency subject to act in accordance with the law and use law enforcement to perform their job. If you just tell them you've earned $4,000 through trade and markup with no particular structure and pay your taxes, they'll likely just like to see proof that you didn't earn more then you're claiming and move on.

They want their money with as little cost as possible. Unless they have reason to suspect you owe substantially more (enough to warrant investigation), they'll just move along beecher investigation costs a lot.

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