Federal tax law defines gross income as income from all sources, unless excluded by law. In one case, a married couple was assessed an accuracy-related penalty for unreported income from illegal marijuana manufacturing and sales. The couple argued that the IRS lacked direct evidence linking them to any income-producing activity related to marijuana. However, if an activity is illegal, the IRS’s evidence requirement is minimal. In this case, the IRS was able to prove a nexus between the taxpayers and the illegal manufacture and sale of marijuana. Based on the IRS evidence and the taxpayer’s failure to cooperate, the U.S. Tax Court upheld the penalty. (TC Memo 2023-150)
Our Blog 