Does income from illegal activity need to be reported?
Yes, the IRS requires income from illegal activities be included in your income as other income (Line 21 on Form 1040) or self-employment income (Schedule C). Expenses incurred while engaging in illegal money-making activities usually can’t be deducted.
If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner.
Although the IRS is primarily concerned with collecting income tax, law-enforcement agencies do request a taxpayer's information from them.