[HN Gopher] Taxation of illegal income in the United States
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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?
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