TAX WAR

    CONTACT

TO TAX, OR NOT TO TAX

INTERNATIONAL INCOME TAX AVOIDANCE

AL CAPONES INCOME TAX EVASION CASE AND THE TAXATION OF ILLEGAL INCOME

ENFORCED TAX COLLECTION AVOIDANCE

ECO TAX

VAT FRAUD

CUSTOMS DUTY AVOIDANCE

 

 

 

 

ADÓHÁBORÚ

ALL YOU NEED TO KNOW ABOUT TAXATION AND TAX AVOIDANCE

AL CAPONE’S INCOME TAX EVASION CASE AND THE TAXATION OF ILLEGAL INCOME

"The income tax law is a lot of bunk. The government can't collect legal taxes from illegal money." Al Capone

Al Capone, the world’s best known gangster and public enemy number one, was allegedly head of a crime organization that netted huge profits from the illegal liquor trade during the Prohibition era. In 1931 Capone was found guilty of tax evasion and was sentenced to jail.

The conviction of Capone was based on the 1927 U.S. Supreme Court ruling in the United States v. Sullivan case. In that particular case, the defendant did not pay income tax on his gains from illicit traffic in liquor. The defense was based on the fact that according to the Fifth Amendment to the Constitution of the United States of America, no person shall be compelled in any criminal case to be a witness against himself.  The U.S. Supreme Court decided the following:

“1. Gains from illicit traffic in liquor are subject to the income tax.”

“2. The Fifth Amendment does not protect the recipient of such income from prosecution for willful refusal to make any return under the income tax law.”

“3. If disclosures called for by the return are privileged by the Amendment, the privilege should be claimed in the return.”

This means that persons who earn income by illegal means are required to report unlawful gains as income when filing tax returns, but they are entitled to invoke the Fifth Amendment if any more details are required concerning their illegal income.

However, the system of income taxation is based on the self-assessment method, which means that tax liability is not calculated by the tax authority but by the taxpayer himself. The payment of tax must be preceded by the filing of a return declaring the actual amount of tax due. The amount declared in the return is to be checked by the tax authority, which means that the authority assesses the correctness of the type and calculated amount of income declared, therefore the taxpayer is obliged to possess records and documents that prove the amount and type of income. In the absence of a legal type of income, however, the tax authority can report the suspicion of crime to criminal authorities. Furthermore, in the case of a prosecution, the declared income without a legal source can be used as evidence against the defendant in court. For instance, in the case Garner v. United States, the income tax returns in which Garner revealed himself to be a gambler were introduced in evidence as proof of the federal gambling conspiracy offense with which he was charged.

In consequence, the obligation to declare illegally earned income is indirect self-incrimination and therefore contrary to the Fifth Amendment. If there are no obligation to declare the income, however, the crime of tax evasion cannot be committed.

As a general rule, countries have had a long standing difficulty to seize their fair share of illegal income. Instead of proving the crime and confiscating the proceeds, or when the proceeds are spent imposing a fine, the states in many cases attempt to tax the earnings, because proving the existence of income or wealth is often much easier. In addition, taxation can be used to imprison people who commit a crime that is hard to prove.

ENFORCED TAX COLLECTION AVOIDANCE