The Price of Crime
Taxes. A trigger word for young adults and a tedious task for adults. Something that everyone can unite over disliking, even criminals. Yes, even criminals. Many people assume that if income comes from an illegitimate or illegal source, a criminal is obviously not expected to report the income on their tax return. Surprisingly, under federal law, all income is taxable, whether it is earned legally or illegally. This fact raises many questions: if someone reports their illegal income, aren’t they admitting to a crime? Worse, if they don’t, didn’t they commit tax evasion? These questions - and the legal standard for this phenomenon - are all answered by United States v. Sullivan (1927).
To begin, one must understand the nature of the U.S. federal income tax system. The system requires taxpayers to self-report their earnings annually; as income increases, so does the rate at which it is taxed. In this system, income from an illegal activity or source is taxable because the Internal Revenue Code - a body of federal statutory tax law in the U.S. - defines gross income to include “all income from whatever source derived”. Of course, taxpayers that are reporting income from an illicit source do not need to explicitly state that it is illegal and incriminate themselves; they can, instead, classify the income generically. The fact that illegally earned income must be taxed simply prevents criminals from receiving preferential treatment over law-abiding citizens.
United States v. Sullivan (1927) sets the legal precedent for this matter. For context, the defendant, Manly Sullivan, was a bootlegger during the Prohibition era; he made significant profits selling illegal liquor. He was later indicted for refusing to file an income tax return and pay taxes on his illegal income. Sullivan argued that forcing him to file the tax return violated the Fifth Amendment right against self-incrimination because, of course, by declaring the source of his income, he would be admitting to a federal crime. Ultimately, the Supreme Court rejected this defense and held that illegal profits are still taxable and that the Fifth Amendment does not broadly protect criminals from having to file their tax returns. This case thus monumentally established that all income is taxable, regardless of the source.
Sullivan is historically important, yes; it is also very interesting due to the interpretation of the Fifth Amendment. The Fifth Amendment protects citizens from being compelled to testify against themselves. Still, as Sullivan outlines, filing a tax return is not automatically self-incriminatory. The taxpayer may invoke the Fifth Amendment on the specific parts of the tax return that involve filling in incriminating details. In fact, many tax professionals advise that if discussing the source of illegal income on a tax return, it is in the criminal’s best interests to generalize the source. Regardless, however, the method of concealing illegal activity in a tax return must still be filed.
The standard set by Sullivan serves many important public interests, even in today’s modern society. First, it simply works to maintain equality. Criminals should not have a tax advantage over lawful citizens; everyone should rightfully be required to pay taxes on their earnings. However, interestingly, the case also makes it easy to prosecute criminals and combat organized crime. As many criminals are under the impression that paying taxes on their illegally earned income is self-incriminating, they often fail to file a tax return entirely. Once in the trap, it is much easier for them to be caught for tax evasion rather than the actual offense or crime that they were partaking in. A famous example is Al Capone - the ruthless boss of the Chicago mob - who was imprisoned for tax evasion. Initially, prosecutors were unable to convict him for his many violent crimes. Ultimately, however, they convicted him because he, unironically, did not report his illegal profits!
Conclusively, an analysis of United States v. Sullivan (1927) and a basic examination of U.S. tax laws reveals that it is completely expected for criminals to pay taxes on their illegal earnings. While doing this may seem counterintuitive due to concerns about self-incrimination, not including illegal earnings on the tax return can often be even more harmful to criminals, as seen through Al Capone’s imprisonment. No one can avoid paying their taxes - not even criminals.
Bibliography
“United States v. Sullivan | 274 U.S. 259 (1927) | Justia U.S. Supreme Court Center.” Justia. Accessed June 30, 2026. https://supreme.justia.com/cases/federal/us/274/259/.