How does the IRS control "anonymous cash gifts" that are actually illicit income?

That is, what prevents a drug dealer from claiming that his/her illicit income is simply non-taxable cash gifts from anonymous source?

Miami, FL -

Attorney Answers (3)

Steven M Zelinger

Steven M Zelinger

Tax Lawyer - Philadelphia, PA
Answered

The most obvious way, would be an audit of the persons tax return (if filed) or inquire into why they are not filing. If they are "self employed" and can only prove income with bank deposits the IRS is going to ask for an explanation of the deposits or income and the source. The source won't be anonymous for long....

This is not legal advice nor intended to create an attorney-client relationship. The information provided here is... more
Charles Adam Shultz

Charles Adam Shultz

Probate Attorney - Los Angeles, CA
Answered

The biggest tool for the IRS is going after unreported income. When you get audited, it is the taxpayers burden to prove everything. Your word is not proof. Alleging people anonymously gave to you out of the goodness of their hearts wont cut it. You're not a charity. If you cannot establish who gave you the gift, and they cannot confirm the source, they will just access it as income.

The general advice above does not constitute an attorney-client relationship: you haven't hired me or my firm or... more
Henry Daniel Lively

Henry Daniel Lively

Tax Lawyer - Newport Beach, CA
Answered

Everything you receive under code section 61 is income, unless you can prove otherwise. Gifts are one of the exceptions, but it is the taxpayer's burden to prove the item is actually a gift. This would not be possible under the facts you present. This is what caused Al Capone to go to jail. He was convicted of tax evasion and not for his other crimes.

H. Daniel Lively, Esq., LL.M., CPA Certified Tax Specialist, CA Board of Legal Specialization dlively@... more

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