Whether it’s earnings from online scams, fraud Multi-Level Marketing programs, and shady High Yield Invesment Progrqams (HYIP), as long as it’s considered income, it’s taxable.
Any monetary benefit received from an activity, illegal or otherwise, normally becomes part of one’s taxable income.
That’s from an article published in MSN Money Central which also summarizes how they are treated under US tax laws. Take note of the following, lest you want to run into trouble with the Internal Revenue Service (IRS).
Illegal income. Illegal income, such as money from dealing illegal drugs (and earnings from HYIPs, autosurfs, and scams), must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.
Gambling winnings. HYIP investing is indeed gambling and the resulting earnings, together with other gambling winnings, should be included on Form 1040, line 21. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings.
Bribes. If you receive a bribe, include it in your income. (But be prepared because the police may arrest you anytime for the crime of receiving a bribe!)
Kickbacks. You must include kickbacks, side commissions, push money or similar payments you receive in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040). Politicians, take heed.
Stolen property. If you steal property, you must report its fair market value in your income in the year you steal it — unless, of course, you return it to the rightful owner. That’s asking a thief to make an honest declaration of his earnings. Nice.