In the United States, almost all income is taxable—including illegal income. Yes, if your a thief, you are supposed to report your ill-gotten gains on your tax returns. If you don’t, your guilty of tax evasion.
Yes, it’s entirely possible to get convicted of embezzlement (usually by your state) and then get convicted for tax evasion (usually by the Department of Justice). And a Kansan is looking at just that scenario.
Michael Slayton, of Tecumseh, Kansas, is accused of embezzling $238,000 from the home health care company he co-founded. Mr. Slayton allegedly pocketed the funds by writing 138 checks to himself, but using a different payee on the company’s books. The US Department of Justice alleges that Mr. Slayton also reported incorrect amounts on employment tax forms to help cover up the embezzlement.
All told, Mr. Slayton is looking at three counts of tax evasion, three counts of filing false federal tax returns, and three counts of failure to account and pay withholding and FICA taxes. If convicted, Mr. Slayton is looking at an extended stay at ClubFed.
So if you decide on a life of crime, it’s a good idea to not have the IRS on your back. Yes, you should report your illegal income as “Other Income” on line 21 of your Form 1040.