Hastings Business Law Journal


The taxation of thieves and their victims must be studied as a whole. Both perpetrators and victims of crime must navigate the complexities of the federal tax laws. Not surprisingly, the decision to tax illegal income resulted in unreported income by criminals and prosecution of criminals by the Treasury Department. The perpetrators of crime must defend a second criminal prosecution, which requires a careful examination of the U.S. Constitution, provisions of the Internal Revenue Code, and administrative practices of the Internal Revenue Service. The victims of crime are often in conflict with the Treasury Department as to the inclusion and character of any gain or the allowability, character, and utilization of any losses resulting from theft. The interest of victims is also adverse to the interest of the Treasury Department as to the allowability, character, and timing of any loss arising from fraudulent investment schemes, including Ponzi schemes. Unfairly, the tax liability assessed, and the attaching penalties and interest, directly impacts the availability of funds for restitution to victims. In addition to coping with the emotional and financial impact of theft, victims must compete with the Treasury Department for any money or property held by criminals because of the priority of federal tax liens. After the application of the tax laws, criminals are often prosecuted twice and victims are often victimized twice and, unfortunately, the second time by Uncle Sam.