Taxing the Proceeds of Crime
| Date | 01 February 1997 |
| DOI | https://doi.org/10.1108/eb027128 |
| Pages | 117-124 |
| Published date | 01 February 1997 |
| Author | John Glover |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control —
Vol.
1. No. 2
ANALYSIS
Taxing the Proceeds of Crime
John Glover
Illegally acquired gains are taxable, according to the
judge-made law of common law countries.1
Revenue codes are surprisingly silent on the sub-
ject. For a short while, though, things were
dif-
ferent in the USA. Congress received its legislative
power to tax 'incomes from whatever source
derived' with the passage of the 16th amendment
in 1913. In the same year, a tax was imposed on
income derived from 'any lawful business carried
on for gain or profit'.2 In 1916, without debate,
Congress omitted the word 'lawful' — substituting
an unqualified form of words which still endures.3
Senator Williams, moving the Senate's acceptance
of the 1913 bill, said that its 'object' was
'to tax a man's net income: that is to say, what
he has at the end of the year after deducting
from his receipts his expenditures or losses. It is
not to reform men's moral characters; that is not
the Act at all.'4
Income tax in economic terms is a levy on persons
measured by an index of their gains and advant-
ages,
or 'control over society's resources'.5 Both
horizontal and vertical dimensions in tax equity
suggest that consequences of criminality should be
ignored.6 Horizontally, the value measurement of
a
taxpayer's gain is the same, whether or not it
derives from activity contrary to law. Sources of
people's taxable advantages do not affect the tax-
able capacity of those persons
inter
se.
Vertical con-
siderations are comparable. Persons who are
economically better off should bear a proportion-
ately greater share of the tax burden. How can
source of gains criteria affect differences in situa-
tion between taxpayers? Making disapproval of one
type of source a relevant difference in this calculus
is a kind of category mistake. Taxation's business
has nothing to do with moral gestures. Its purpose
is to raise money for the activities of government.
All citizens, lawful or unlawful, should contribute
according to their capacity to pay.
In Rutkin v United
States,
the Supreme Court of
the United States said
'An unlawful gain, as well as a lawful one, con-
stitutes taxable income when its recipient has
such control over it that, as a practical matter, he
derives readily realizable economic value from
it.'7
Gains from immorality, the investment of lottery
winnings, as well as from diligence and hard work
are all taxed in an undiscriminating way. Indeed, it
may be 'incongruous' for the gains of an honest
labourer to be taxed, while the gains of the dis-
honest labourer are left immune.8 Taxation laws
are not penalties.9 They are not concerned to disci-
pline the source of gains. Other laws fulfil this
task. Police and more coercive arms of government
are better adapted to law enforcement. The level of
taxpayer compliance with revenue laws is a
resource to be employed for revenue purposes
only.
PROPERTY INTERESTS IN THE
PROCEEDS OF CRIME
Assessability of the proceeds of crime differs
between the common law countries under con-
sideration. Revenue systems take differing attitudes
to gains, according as to whether wrongdoers
obtain title to the fruits of their activities. In some
cases wrongdoers freely receive funds passed to
them by third parties. In other cases, funds of third
parties are fraudulently taken, stolen, or otherwise
misappropriated. A wrongdoer who freely receives
the funds of third parties might run an illegal bet-
ting ring or call-girl service, or sell illegal drugs.
Third parties trading with the wrongdoer are
Page 117
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