Tax Fraud Generally
Legal Source versus Illegal Source Tax Crimes
The Internal Revenue Service’s Criminal Investigations (CI) unit conducts and prosecutes for tax crimes. These investigations generally fall into four interdependent categories: Legal source tax crimes, illegal source financial crimes, narcotics-related financial crimes, and counterterrorism financing.
Legal Source Crimes
By far the most common category is legal source tax crimes, which is when an individual uses legally obtained income and seeks to avoid paying taxes on it. For example, a restaurant owner who earns legitimate income from his business will attempt to understate or misrepresent his actual earnings. An action of this nature is in clear violation of the tax crime laws and anyone who is caught would face prosecution by the IRS.
Illegal Source Crimes
By contrast illegal source income is when someone obtains money illegally, and then attempt to hide that money by failing to report it. For example, a drug dealer who earns his income by selling drugs is committing double offense by failing to report the illegally obtained monies. To learn more about illegal source tax crimes, visit our Narcotics Related Tax Crimes page.