Fact Check

IRS Tells Taxpayers to Claim Income from Illegal Activities?

The agency's regulations also list how to report embezzled funds.

Published April 24, 2024

 (Reddit user heraldexaminer, Getty Images)
Image courtesy of Reddit user heraldexaminer, Getty Images
Guidelines published by the IRS explain how taxpayers can claim items they have stolen, or earnings from illegal activities.

It's often said that crime doesn't pay. In the case that it does, however, "Uncle Sam wants his cut," according to a Reddit post that went viral in April 2024.

The post, which gained more than 22,000 upvotes, includes an image showing apparent Internal Revenue Service guidelines for reporting income from illegal activities, including drug-dealing, and stolen property.

"I like how they provide references to different forms if you're self-employed, really helps remove the ambiguity for folks serving their community as a small business owner," one commenter wrote.

The same claim made headlines during the 2021 tax season, when publications joked that potential criminals were "running out of time" to return stolen goods to avoid paying taxes on them. A post on X (formerly Twitter) that shared the claim and reminded taxpaying criminals that "tax szn is around the corner" went viral.

And it's true. Publication 17, which contains the IRS general rules for filing federal income tax returns, lists illegal activities under "other income" — categorized as self-employment activity — required to be reported to the federal tax agency.

"Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment activity," read the 2023 IRS guidelines.

The guidelines also require that those who steal property must report its fair market value as income in the year that the item was stolen. Of course, you can avoid paying taxes on such items so long as you return them to the person they were stolen from in the first place.

The regulations also list how to report embezzled funds, note that bribes are considered "nondeductible expenses" and remind taxpayers that kickbacks, side commissions and "push money" must also be included in income.

It's not just items or earnings obtained through illegal activities. That watch you found in the gym locker room? Yep, it's taxable.

"If you find and keep property that doesn't belong to you that has been lost or abandoned (treasure trove), it's taxable to you at its fair market value in the first year it's your undisputed possession," noted the IRS.

Snopes spoke with an accountant who said that while the reporting requirements themselves aren't new, there was previously a separate form specifically for reporting illegal activity income. It's unclear to what extent people actually used the form in the past.

It's not exactly clear whether law enforcement will be given information about individuals who report income from illegal activities.


Dolan, Debra. "Time Is Running out to Return Stolen Goods to Avoid Paying Taxes on Them." Https://Www.Wdbj7.Com, https://www.wdbj7.com/2021/12/29/time-is-running-out-return-stolen-goods-avoid-paying-taxes-them/. 

"IRS Asks That Criminals Provide Its Cut of Stolen Property, Illegal Income." KXXV, 29 Dec. 2021, https://www.kxxv.com/news/local-news/irs-asks-that-criminals-provide-its-cut-of-stolen-property-illegal-income.

Publication 17 (2023), Your Federal Income Tax | Internal Revenue Service. https://www.irs.gov/publications/p17. 

"Stole Something? IRS Says Stolen Property and Bribes Must Be Reported as Income." Usatoday, https://www.usatoday.com/story/money/2021/12/28/irs-says-stolen-property-must-reported-and-twitter-goes-wild/9035694002/.

Madison Dapcevich is a freelance contributor for Snopes.

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