Mar 22 2010

Illegal Income and Tax Evasion

In the United States, even when income is obtained illegally, by gambling, theft, or drug trafficking, are still required to report their income in annual tax return filings if they are subject to the Internal Revenue Code who. Anyone who is suspected of lawbreaking, including, most famously Al Capone, have been successfully prosecuted for tax evasion when it has not been possible to prosecute them for their non-tax related crimes.

Reporting Illegal Income

According to the United States Supreme Court, reporting illegal income does not violate an individual’s right to remain silent should they be put under arrest for illegal activities. The process of tax evasion remains a popular method for prosecutors to trap criminals.

In other instances, tax evasion is applied and used as a final nail in the coffin by prosecutors. It is often deemed that if a person earns illegal income, they are also likely to be guilty of tax evasion. Anyone who attempts to report illegal income by suggesting that it coming from a legitimate source can be charged with the crime of money laundering.

According to UK law, however, law enforcement agencies cannot generally have access to tax returns information. This makes it a lot harder for illegal earnings to be safely declared. In practice, however, anyone undertaking criminal activities will usually try to avoid reporting the income, rather than risk discovery. Notably, a Soviet spy, Aldrich Ames, earned more than $2 million cash for his espionage and was subsequently charged with tax evasion as none of the Soviet money was reported on his tax returns. Ames also tried to argue that the tax evasion charge should be dismissed on the grounds his espionage profits were illegal. This effort was unsuccessful, however.

Reporting Tax evasion and Corrupt Tax Officials

When it comes to illegal income and tax evasion, however, it is not only the income itself or the lack of reporting that opens up problems. There are sometimes issues with tax officials that affect individuals with illegal income that they either do not report or otherwise try to report on their income tax returns. Corrupt tax officials are those officials working for the IRS who may nonetheless choose to cooperate with the tax payers who intend to evade taxes. They may, for instance, avoid reporting tax evasion when they discover it, in return for a bribe. Such corruption among tax collectors is certainly a problem in underdeveloped countries although it is sometimes also a problem in countries like the US. Tax lawyers and chartered accountants can also be involved in helping taxpayers including firms and companies, to evade taxes, in much the say way that Clearing and Forwarding agents help in evasion of Customs duties. The removal of human interface is considered the best solution to this problem.

This article does not give any legal advice.

Contact the business tax lawyers Thorn Law Group about business tax issues. Offices located in Washington DC, Maryland, and Virginia.