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IRS Income Reporting Requirement for Criminals Goes Viral

Jonathan Walker
Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
Published: December 31, 2021
WASHINGTON, DC - JUNE 08: Internal Revenue Service (IRS) Commissioner Charles Rettig testifies during a Senate Finance Committee hearing June 8, 2021 on Capitol Hill in Washington, D.C. The committee is hearing testimony on the IRS budget request for 2022. The IRS is asking thieves to report stolen properties as part of tax filing. (Image: Tom Williams-Pool/Getty Images)

In recent days, several tweets have been made mocking the Internal Revenue Service’s (IRS) requirement that criminals report their income to tax authorities. Many have questioned the practicality of this guideline since no one would realistically expect criminals to report their income to the government.

“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 IRS says on its website.

The department also asks people to include any bribes they have received in their income calculations. Plus, the IRS expects people who have made money from illegal activities, like selling illegal drugs, to include such income in their tax reporting. When USA Today questioned the IRS about the rules, a spokesperson from the agency confirmed them to be true but refused to comment on the matter further.

The IRS guidelines prompted numerous hilarious tweets. “So once you report your stolen stuff you legally get to keep it right? Asking for a friend,” said one Twitter user. “If I steal a bunch of tvs from walmart and a homeless man steals them from me can i write that off as a loss?” another Twitter user questioned.

The issue of reporting illegal income has been hotly debated in the past, with some questioning whether it would lead to incriminating the individual. In 1927, the United States Supreme Court ruled that criminals must pay income tax on all their stolen property. 

The ruling has been used by the government to nab several criminals by charging them for tax evasion. The most famous case of such prosecution is that of crime boss Al Capone in 1931 when prosecutors asserted that his stated income did not match with the lifestyle the gangster led. 

In addition to stolen income, an individual must also report any “found property” that has been lost or abandoned. The individual will have to pay taxes on the item. The tax is calculated based on the “fair market value” of the item during its first year in the individual’s “undisputed possession.”

Some netizens have referenced the Black Lives Matter riots while discussing the IRS tax rules on stealing. During the riots, several shops were looted by activists and other individuals across multiple cities.

“All income, from whatever source, is taxable income unless excluded by an act of Congress… If you receive $500 to kill your neighbor’s annoying rooster, or find $1 on the street, or embezzle from your employer, that’s all taxable income, as well as your paycheck from flipping burgers at McDonald’s,” Gary Schroeder, a Maryland-based tax preparer, told NBC News.

Stephen Moskowitz, a San Francisco tax attorney, told the media outlet that individuals who expect to be convicted on embezzlement charges often tend to report such illegal income in a bid to prevent being charged for tax evasion. 

If any activity is legal at the state level but illegal at the federal level, like the production of marijuana, the income generated from such activities must also be disclosed to the IRS.

Though reporting on illegal income sounds legally dangerous, the reality is different. The IRS is required by law to keep tax records a secret unless law enforcement has a case against someone and succeeds in getting a court order to access the individual’s tax records. According to the U.S. Sentencing Commission, the number of tax fraud convictions in 2020 declined to 324 from 595 cases in 2016.