Illegal income as an object of taxation in law of the Russian Federation and the United States

Abstract

One of the perpetual problems within the Russian and U.S. tax law is the establishment of criteria for taxability of income, under what conditions the income of a taxpayer should be taxable. The fact   the legislation nor the rulings of supreme courts contain a clear answer to this question, leads to the emergence of legal uncertainty on the tax consequences of receiving illegal income. The goal of this research lies in examination of problem of taxation of illegal income, including the questions of bringing to tax and criminal liability for tax evasion on illegal income, as well as in substantiation of a new solution to this problem. For achieving this goal, the author analyzes the Russian and U. S. case law on taxation of criminal and other illegal income. Although such practice is not always consistent, the merit of the court includes the development of classical theory of the object of income taxation. Namely, the Supreme Court of the United States formulated the well-known concept of taxable income and the rule on “right of claim”. The author believes that the grounds for distinguishing between taxable and non-taxable income is the criterion of economic benefit. The strict application of such criterion for the assessment of tax consequences from receiving illegal income led the author to a conclusion that contradicts the interpretations of the Russian and U. S. courts: only the economic benefit from the free use of the property, rather than the overall value of such property,  should be recognized as the object of taxation should be recognized. The concept proposed by the author can be used in the practice of tax and judicial authorities for ensuring subjective rights and legitimate interests of taxpayers.