An Australian man gets to deduct stolen drug money from his income for tax purposes (second item). Does American tax law work similarly?

An Australian court ruled Wednesday that a convicted heroin dealer can claim a $165,000 tax deduction for money that was stolen during a drug deal. ...

The ATO had been trying to make La Rosa — who served a 12-year jail term for dealing heroin and amphetamines — pay tax on his 1994-95 income, which it estimated at $337,000.

But La Rosa insisted his taxable income should be reduced because half that sum had been stolen.

The money had been buried in La Rosa's backyard and was dug up to spend on a drug deal in May 1995, but was stolen during the transaction by unknown people, the court was told.

First, do you have to pay income tax on illegal income? Wouldn't the government just seize all the money involved? Or do you then have to pay taxes over and above the seizure? Wouldn't the Fifth Amendment prevent you from having to declare illegal income? Second, I wasn't aware that stolen property is tax deductable.

Make sure to read Ron's comment.

My father was in the Criminal Investigation Division of the IRS for 20 years. Their job is to find criminals that aren't paying their taxes on illegal income and arrest them for tax evasion.

When he was in the Audit division he said he'd often seen returns that said things like "$100,000 smuggling" and as long as they paid the right amount of taxes they wouldn't do anything to them.



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