What Is Illegal Income?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 03 December 2019
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Illegal income is any type of income that is gained by means that are not considered legal in the jurisdiction in which the recipient resides. Income of this type may be earned in any number of ways, including theft of property and selling that property through various means, embezzling money from an employer, family member, or client, or engaging in any activities for profit that are considered illegal activity according to current laws. While the income may be gained through illegal means, there is a good chance that it is still considered taxable.

Illegal income is different from earned income, in that the funds received are generated from activities that are not considered to be within the bounds of the law. Since the income is created through efforts that are considered illegal, choosing to engage in these activities does open the possibility of being discovered and prosecuted to the full extent allowed by current laws. For this reason, most people who choose to generate illegal income do so in relative secrecy, often creating some sort of a cover or façade that has the appearance of being a legitimate business enterprise.


An additional aspect of the generation of illegal income is that while the activities that created the flow of revenue are illegal, most tax agencies still require by law that the recipients report the income and pay taxes on those amounts. This means that if an individual is found to be involved in an illegal enterprise, he or she can not only be prosecuted for those activities but also be charged with the crime of tax evasion, if those funds were not reported in some manner on a tax return. As a result, the lawbreaker will typically face multiple charges that include additional fines as well as the opportunity for additional time spent in prison.

The penalties for participating in some scheme to generate illegal income will vary, based on the nature of the crime involved and the current laws that have to do with the commission of that crime. This means that someone who chose to participate in an illegal poker game may receive a fine, while someone who embezzled funds from an employer may face not only fines but time spent in jail. In like manner, an investor who is found guilty of the crime of insider trading when that type of activity is prohibited by law may also face time served in prison as well as fines and restrictions on further participation in investment markets.


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