[HN Gopher] Taxation of illegal income in the United States ___________________________________________________________________ Taxation of illegal income in the United States Author : bobbiechen Score : 67 points Date : 2022-04-16 01:56 UTC (1 days ago) (HTM) web link (en.wikipedia.org) (TXT) w3m dump (en.wikipedia.org) | highwind wrote: | Joker's take on the issue: | https://www.youtube.com/watch?v=QK0UxenfV4Q | jbrot wrote: | The section on marijuana is particularly interesting. You are | apparently allowed to deduct ordinary business expenses, even if | the business in question is illegal. However, Congress has | explicitly disallowed these deductions in the case of illegal | drug trafficking. Since marijuana is illegal federally, the | courts have ruled that medical and recreational marijuana | businesses that are legal under state law may not deduct any of | their ordinary business expenses from their federal taxes. | vmception wrote: | I wonder if that passed the 14th amendment's equal protection | clause. Curious how Congress' exception is written. Maybe if | they tied it to anything on the scheduled substances list then | it would pass the 14th amendment. | | Edit: _> if such trade or business (or the activities which | comprise such trade or business) consists of trafficking in | controlled substances (within the meaning of schedule I and II | of the Controlled Substances Act) which is prohibited by | Federal law_ | | Ah yes, they wrote it that way. Ok. | KMag wrote: | It would be interesting to see this challenged for the case | where interstate commerce isn't involved. I know the federal | government has regularly asserted jurisdiction under the | premise that drugs that don't cross state lines still affect | interstate prices. I doubt it would be successfully | challenged, but it would still be interesting to see it | challenged. (I'm not a lawyer. This is not legal advice.) | mjthrowaway1 wrote: | Yes, it's brutal. With the Tax Cut and Jobs Act you can | incorporate more expenses in to indirect COGS but sales, | marketing, opex, admin are non-deductible. | chiefalchemist wrote: | Slight but important correction. These business are not legal | at the state level, their products are decriminalized. Since, | as you noted, they are illegal federally, the best states can | do is decriminalize. They cannot override the fed status. | gnopgnip wrote: | The omnibus spending bill, at the federal level | decriminalizes state legal medical marijuana. All prosecution | is prohibited | margalabargala wrote: | Federal drug enforcement has jurisdiction over the states | which have passed bills legalizing these products, and it is | the stated position of Federal drug enforcement that they | will not pursue any enforcement related to these substances | in these states. | | Thus the products and the businesses are _de facto_ legal, | even if they are _de jure_ not. | rootusrootus wrote: | Has that actually been decided? The businesses are legal | under state law, and if they aren't selling across lines then | it's starting to get into gray areas on what enforcement | power the feds actually have. Which is probably why they | haven't really pushed the issue, because they have reason to | believe it wouldn't go their way. | zdragnar wrote: | So long as Wickard v. Filburn remains precedent, it is | really quite settled. The only question is if it will be | enforced. Since the states had voted to legalize it, it is | obviously politically unpopular to clamp down on them, but | they will likely continue to make the operational aspects | of these business very difficult (banking, credit card | processing, etc). | petilon wrote: | Tax rate for illegal income should be 100%. | vmception wrote: | Your tax exempt entities (retirement accounts, non profits) are | exempt from a lot of criminal liability because they dont have a | tax reporting dilemma. | | If only Al Capone used a non profit right? Makes me wonder what | might be going on now. | Computeiful wrote: | In their examples section they mention how a double agent was | charged with tax evasion based on $2m of undeclared income from | bribes. | | But if the agent WERE to mention the income on their tax | documents, even as "Unspecified due to 5th amendment protection" | that surely would be incriminating enough to cause further | investigation from the state. (I assume the US government keeps a | close eye on their agents papers). | | I'm just not sure how you're supposed to declare ill-gotten gains | without 5th amendment worthy self-incrimination. | vmception wrote: | That's why they amended the constitution to collect income | taxes. The 16th amendment was necessary for a variety of | reasons. | | The Supreme Court - the constitutional court - kept squashing | attempts to collect one. | | It might not be important that it undermines your 5th amendment | right when the 16th amendment allows any means necessary - or | doesnt limit collection methods. | [deleted] | zauguin wrote: | The answers on | https://law.stackexchange.com/questions/76594/if-you-are-a-l... | strongly suggest that the IRS generally would not share these | papers with other law enforcement agencies (except under very | special circumstances). | formerkrogemp wrote: | They don't not share them out of the goodness of their | hearts. They're so intentionally understaffed and overworked | that they probably don't have time to refer all but the most | egregious cases. | inglor_cz wrote: | If the goal of the IRS is to collect as much tax money as | possible, they would, in such a case, have all the incentives | to _protect_ your illegal business from being busted. | R0b0t1 wrote: | The IRS has testified against the government on behalf of | defendants, but you are still open to harm from illegal | parallel construction. | nullc wrote: | The IRS couldn't manage to keep the detailed tax records | of every american out of propublica's hands... Does | anyone think they can keep them out of other agencies | hands? | natpalmer1776 wrote: | I would imagine that in cases where you're earning a | significant enough amount of money, the issue isn't | whether the government knows you're up to no good, the | issue is whether they have admissable evidence that | you're up to no good. | limaoscarjuliet wrote: | We should work under general provision: if data is gathered, | it will be used. Even if it is not legal today for IRS to do | something, it does not mean it will not be tomorrow. And law | unfortunately works backwards too. | doldols wrote: | Presumably investigating someone over that would violate their | 5th amendment rights, no? | ThePowerOfFuet wrote: | > Presumably investigating someone over that would violate | their 5th amendment rights, no? | | You may wish to reread the 5th amendment. | doldols wrote: | Go on. How is forcing someone to testify against themselves | with the threat of criminal charges (tax fraud!) and then | using that information in a criminal investigation not a | 5th amendment violation. | | I'm not a lawyer, I don't know anything. I'm just curious. | ThePowerOfFuet wrote: | The fifth amendment prevents forcing anyone to testify | against themselves, but does not stop investigations. | | You asserted that the 5th should prevent an | investigation, but it will do nothing of the sort: | | > Presumably investigating someone over that would | violate their 5th amendment rights, no? | doldols wrote: | I asserted that 5th amendment should prevent the | government from using this coerced testimony. | | Would this not taint any investigation started on the | basis of coerced testimony? Why would the exclusionary | rule not kick in here? | | As far as I understand in a criminal context no adverse | inference may be drawn from ones refusal to self- | incriminate. How would investigating someone for refusing | to self-incriminate to the IRS not be exactly that? | | E: Found some related literature which I am reading now h | ttps://scholarlycommons.law.wlu.edu/cgi/viewcontent.cgi?a | rt... | ThePowerOfFuet wrote: | >I asserted that 5th amendment should prevent the | government from using this coerced testimony. | | Again, you did no such thing: | | > Presumably investigating someone over that would | violate their 5th amendment rights, no? | | An investigation can be initiated, and can proceed, | without any testimony whatsoever from the accused. | | Which coerced testimony are you attempting to refer to? | The cops show up and ask you about your tax return, and | you say "". Either they continue to investigate you or | they don't, but you have not been coerced into saying | anything at all. | Supermancho wrote: | Obviously, you've been correct the whole way. | | > Presumably investigating someone over that would | violate their 5th amendment rights, no? | | >I asserted that 5th amendment should prevent the | government from using this coerced testimony. | | This kind of revisionist interpretation, that a poster | will engage in to make an altogether different assertion, | is not uncommon on HN. Pointing it out gets downvoted, | overall making the conversations worse because it's | viewed as nitpicking, when it's really just trying to | avoid bad faith...wasn't there an article posted about | this recently? | formerkrogemp wrote: | If the government asks if you, Bill the graffiti artist, | painted any graffiti on the wall of a giant chicken, and | you said no. They could still apply a penalty for lying | to an LEO if that exists as a law if they can catch you | later. | doldols wrote: | Of course, but the fifth amendment only protects you from | self-incrimination if you explicitly invoke it (or keep | your mouth shut). Not if you lie. | saghm wrote: | Does this mean you could fill in illegal income in your | taxes and then for the source put down "I plead the 5th"? | Bilal_io wrote: | Then that would give them a reason to investigate. | | They cannot ask you what you're pleading the 5th for, but | they can go investigate it, and nail you when and if they | find proof of illegal activity. | ThePowerOfFuet wrote: | >and you said no | | You're assuming you have to answer them; the 5th | amendment allows you to refuse to respond in any way. | | Refusing to respond isn't lying. | trhway wrote: | >I'm just not sure how you're supposed to declare ill-gotten | gains without 5th amendment worthy self-incrimination. | | curiously, i think similar situation, yet different outcome - | "bad guys" aren't required to register their machine guns :) | | https://en.wikipedia.org/wiki/National_Firearms_Act#Exceptio... | | "The United States Supreme Court has ruled in Haynes v. United | States that the Fifth Amendment to the United States | Constitution exempts felons--and, by extrapolation, all other | prohibited possessors--from the registration requirements of | the Act. " | limaoscarjuliet wrote: | The idea is to have a legal basis to take your money (or part | thereof) away should you be convicted of said illegal activity. | badrabbit wrote: | Stupid question: can you report your income as illegal on purpose | in order to pay tax on it because you fear the wrath of the IRS | more than the police? If you don't specify the exact nature of | your crimes but only that you wish to pay them more money, will | you get audited or get in trouble with the police/DA? | chiph wrote: | At least one state wants their tax money from illegal income. | North Carolina has an Unauthorized Substances Tax, where you buy | a tax stamp covering your possession of the items (various drugs | and/or moonshine). | | https://www.ncdor.gov/taxes-forms/other-taxes-and-fees/unaut... | | From talking to folks I used to know at the Department of | Revenue, they have never sold any stamps to people in advance of | the cops arriving on the scene. Only to stamp collectors. | | The tax rate for marijuana is $3.50 for each gram (or fraction | thereof) above 42.5 grams. Bulk spirituous liquor is $12.80 per | gallon. | R0b0t1 wrote: | Other states do this and even the federal government, I think. | They're shooting themselves in the foot. If the path to legal | possession is tortuous and likely to incriminate you then | you're protected from divulging it and your nonpayment of taxes | is wholly legal on the grounds attempting to collect makes the | state violate the 5th. | | The widespread use of parallel construction -- and even merely | its plausibility -- means that the IRS's current stance on | reporting illegal income is likely suspect as well. | arcticbull wrote: | There have been a number of cases where the legality of | requiring tax payment on illicit income hinges on the state | tax authorities providing a means of paying said taxes | completely anonymously. | | Of course they do not expect anyone to pay - this is merely | so they can Capone people. It's much easier to nail people | for tax evasion than for the actual crimes they committed in | a lot of cases. | gnopgnip wrote: | The irs is prohibited from sharing taxpayer info without a | warrant. There have been many cases in the past where your | fifth amendment rights have not prevented tax liability or | criminal charges for illegal income. | gwbas1c wrote: | > Only to stamp collectors. | | Or to stamp "collectors?" | cat_plus_plus wrote: | Well, what's the alternative? Income is only illegal after trial | and conviction, and that may not be black and white. If you are a | gardener driving a truck that fails emission regulations, you may | at some point be fined, but otherwise you just pay taxes on your | earnings like everyone else? ___________________________________________________________________ (page generated 2022-04-17 23:00 UTC)