Legendary crime boss and Mafioso Al Capone learned the hard way that the tax man always cometh. Even "Scarface" himself wasn't immune to the eventualities of life: death and taxes. Despite being a known gangster and bootlegger, openly running illegal gambling operations and brothels, extorting countless and being responsible for the deaths of dozens of people (either by his own hand or on his orders), his only sizable prison term (a 10-year sentence, of which he served only seven before being released) was for tax crimes.
Specifically, Capone was convicted on tax evasion for not paying taxes on his ill-gotten millions and for failure to file several years' worth of tax returns. After Capone's sensational trial and conviction in 1931, the IRS found itself on the receiving end of a windfall of back tax payments from some of the best-known names in the criminal underworld.
Illegal income is income nonetheless
The same dogged IRS determination to get its fair share of even illegally obtained income persists today. The Agency has gone so far as to put out specific instructions, found in Publication 17, saying that all income, even that resulting from illegal or illicit activities like dealing drugs, gambling or embezzlement, must be declared.
This can be well illustrated with a real-world example. Joe Smith allegedly embezzled $100,000 from his employer over the course of several years. He didn't report any of that money as income on the tax returns he filed during that time. He was later arrested on charges of embezzlement. While building the case against him for embezzlement, and going in-depth through years of Joe's financial records, prosecutors realize that none of his illicit income was reported to state or federal tax authorities. They amend their complaint against him to add in several charges relating to tax evasion.
Joe has now found himself in a similar situation as Al Capone did decades ago: in need of both skilled criminal defense and tax advice. Joe's story isn't an altogether unfamiliar one in this day and age. News reports abound about people facing charges of embezzlement, fraud, extortion or other criminal activities in conjunction with charges relating to taxes on money gained as a result of those same activities.
Should you ever face investigation for, or charges of, white-collar crime as well as tax crimes, make sure that you have qualified counsel at your side, and make sure that your attorney understands the potential tax implications of the charges you are facing.