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this post was submitted on 22 Feb 2024
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It sounds odd but there was a Supreme Court about it. Essentially someone claimed they shouldn't have to pay taxes on the profits of crime and the Court ruled they did. So they had to create a way for people to do that. For what it is worth, the 5th amendment protects you from incriminating yourself, so you are allowed to decline to provide the details of where the money came from, but it's a bit like paying your parents for something you broke and then just not telling them what it is, and then expecting them not to look around the house.
United States v. Sullivan, 274 U.S. 259 (1927)
That's what ended up getting Capone too: https://www.forbes.com/sites/kellyphillipserb/2018/10/17/al-capone-sentenced-to-prison-for-tax-evasion-on-this-day-in-1931/?sh=2a73f4f27c4c
I love how the government gets to have it both ways. You gotta report income from illegal activities, but you can't deduct costs from illegal activities. I'm of the opinion that deductions shouldn't be a thing at all, but I'd at least like some consistency!
Yeah there's a logical inconsistency for sure, but I see the practical necessity of it.