Do I Have to Report Illegal Activity Income on My Tax Return?

Answer:  YES.  ALL income must be reported, including income from illegal activities, including blackmail, theft, embezzlement, kickbacks, etc.

You include this income on Form 1040, line 21, or on Schedule C or Schedule C-EZ, if you are self-employed in illegal activities.

Publication 17 - Chapter 12
http://irs.gov

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Report all your income and after you weasel your way out of the criminal charges, you can't be accused of tax-evasion.