Yes, illegal income is just as taxable as legal income. If you embezzle funds you have to report that income as “Other Income” on line 21 of Form 1040. Eugene Ceriello discovered this reality.
Mr. Ceriello ran the back-office operation of a service station in Stamford, Connecticut. Mr. Cierello diverted cash payments from the service station’s account to his own bank account. An audit discovered that funds were missing, and the investigation eventually went to the IRS Criminal Investigation Unit. With $191,000 in cash deposited in his bank account in 2008 but just $52,500 declared on his tax return, the IRS had a pretty open and shut case. The total amount embezzled is apparently $638,000 from 2005 – 2008.
Mr. Cierello pleaded guilty today to tax evasion on the embezzled funds. He is required to pay the back taxes, interest, and penalties, and will also likely need to make restitution to the owner of the service station.