It is not a safe option.

It is designed as a catch all.

The FBI isn’t going through tax returns looking for Illegal income; rather if you’re suspected of illegal activity, they WILL go through your tax returns, because if you didn’t report your illegal income that is another law you’ve then broken. — See Al Capone

So. It is both a very bad idea, and a good idea to report your illegal income

A better idea is to not do anything illegal; or at least do the illegal thing offshore and hide the income there. Like a good multinational corporation would.

while it’s probably true that the IRS is more interested in you paying your taxes than prosecuting you because that income may have been “illegitimate,” that doesn’t mean that other agencies might not be interested in the information you provide to the IRS. The FBI/DEA/DHS could easily get a hold of those records and use them to pursue an investigation.

and, yes, your tax returns can be used as evidence in court.

this is why money laundering (obfuscating the origin of illegitimate earnings to make them appear legitimate, esp for tax purposes) is such a lucrative trade.

my advice: never volunteer information which could later be used against you.

American tax forms have an “other income” field. That’s where you can report any money you’ve made not covered by the other fields including any ill gotten gains. That section doesn’t require you to list a source, and even if it did nobody expects you to list “$7,800 - meth sales, $32,200 - crack sales, $50,000 - robberies”. You’d just say “Other income - $90,000”

The logic being that if the government never gives you the opportunity to pay taxes on something, then they can’t charge you with tax evasion. Plus there’s a lot of money in crime! If the US can get a piece of that pie they will!

Finally, the IRS is an already underfunded organization and contrary to the popular narrative, is very easy to work with. If you make a genuine good faith effort to pay your taxes and they find issues, an agent will work with you to resolve it. They’ll set up payment plans, defer payments, and more if you’re cooperative. All this is to say that reporting people for crimes besides tax ones and terrorism (the only one they’re legally required to report to outside agencies) just makes their job harder, so they don’t

Actually yes. Or well sort of. I believe some tax forms even have boxes for illegal income. This is because there is an odd interaction between two very important laws; you must report all income truthfully for tax purposes and you cannot be compelled to incriminate yourself. Tax law cannot overwrite the 5th amendment. This means they have a choice; either they can prosecute anyone they see as having an illegal income but make it so people writing nothing but “I plead the 5th” on all their tax paperwork is perfectly valid. Or they can choose not to prosecute reported criminal income and retain the ability to go after people who refuse to do their taxes. The only way the tax system can work is if reporting your own illegal income doesn’t legally incriminate you.

The things you write on your taxes cannot be used against you in a court of law unless you are lying in some way. So it is legally safe. Practically perhaps not. Both the police and many of the security agencies love using something known as ‘parallel construction’. It’s where they get some information they shouldn’t have access to or shouldn’t be using and build an investigation that explains how they got that information legitimately so they can use it in court.