Jeesoo Nam (USC; Google Scholar) presented Just Taxation of Crime: Should the Commission of Crime Change One’s Tax Liability? at Indiana-Maurer last Friday as part of its Tax Policy Colloquium hosted by Leandra Lederman:

The tax law treats criminals differently from non-criminals. Should it? Under the public policy doctrine, for example, various tax deductions are disallowed if they are closely tied to criminal activity. Criminal activity is, in multiple ways, tax disadvantaged compared to non-criminal activity.

This Article considers a variety of possible justifications. (1) The tax disadvantage provides an incentive not to commit crime. (2) The tax disadvantage helps to bring deserved punishment to the criminal. (3) Criminals have given up their right not to be taxed. (4) Criminals have taken an unfair advantage and so must be stripped of that unfair advantage. (5) Criminals deserve to bear the costs that they culpably and wrongfully created.

This Article argues in favor of (5) as the best theory of taxing crime. Since taxpayers deserve to bear the costs they wrongfully created, the public policy doctrine should be expanded to prohibit all deductions and credits for costs that arise from criminal wrongdoing rather than just the ones which are currently prohibited.