By: A.J. Cook


A member of a Chicago organized crime family got a tax break.

The court explained that fraud, extortion and trafficking in stolen property gets deductions, if operated as a business. Conversely, we can assume, crime as a hobby wouldn't be deductible.

John DiFronzo of River Grove, Ill., was a family crew chief. He and others were charged with conspiring to use gambling on the Rincon Indian Reservation to launder money from organized crime. The police said they also planned to skim profits from their Indian partners.

The crew chief, found guilty of conspiracy and mail and wire fraud, was sentenced to 16 months in jail and fined $10,000. On his tax return, he deducted his $125,000 in legal fees as a business expense.

The IRS challenged this. You can deduct only expenses of a money-making business. In Tax Court, the judge said, that's what this was. The crime family operated a business to make a profit -- illegal profit to be sure -- but still a profit.

The IRS then brought out the fine point that DiFronzo hadn't yet started operating – he had merely conspired to. Maybe this would have been a business, but it never materialized. The court disagreed. Gambling and money laundering were a continuation of their other business.

The judge allowed the deduction of the legal fees. He said the expense wasn't like an illegal bribe, which wouldn't be deductible. It was like the payment of rent or utility charges.

The Moral: Even a dirty business gets a clean deduction.