If you have a client with an illegal drug business, they better file a 1040 and report the income. That is how the IRS got Capone. He didn't file a tax return and claim the income from his illegal activities. Tax evasion is illegal and you go to jail for it.
Illegal activities. Income from illegal activities, such as money from dealing illegal drugs, 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.
https://www.irs.gov/publications/p17/ch12.html
A taxpayer cannot deduct, as a legitimate medical expense, medical marijuana on a federal return.
Controlled Substances
You cannot include in medical expenses amounts you pay for controlled substances (such as marijuana, laetrile, etc.), even if such substances are legalized by state law. Such substances are not legal under federal law and cannot be included in medical expenses.
Illegal Operations and Treatments
You cannot include in medical expenses amounts you pay for illegal operations, treatments, or controlled substances
whether rendered or prescribed by licensed or unlicensed practitioners.
https://www.irs.gov/pub/irs-pdf/p502.pdf
Given the amount a CPA had in their possession, and whether or not they crossed state lines with it, a CPA license would be their last concern if they were caught.
Federal Trafficking Penalties for Marijuana, Hashish and Hashish Oil, Schedule I Substances
Marijuana:
less than 50 kilograms marijuana (but does not include 50 or more marijuana plants regardless of weight)
1 to 49 marijuana plants
First Offense: Not more than 5 yrs. Fine not more than $250,000, $1 million if other than an individual.
Second Offense: Not more than 10 yrs. Fine $500,000 if an individual, $2 million if other than individual.
And Federal law trumps State law when the two conflict.
SUBCHAPTER I — CONTROL AND ENFORCEMENT
Part F — General Provisions
§903. Application of State law
No provision of this subchapter shall be construed as indicating an intent on the part of the Congress to occupy the field in which that provision operates, including criminal penalties, to the exclusion of any State law on the same subject matter which would otherwise be within the authority of the State, unless there is a positive conflict between that provision of this subchapter and that State law so that the two cannot consistently stand together.
https://www.justice.gov/dea/druginfo/ftp3.shtml
Here is the regulation regarding banks accepting deposits:
12 CFR 21.11 Suspicious Activity Report.
(a) Purpose and scope. This section ensures that national banks file a Suspicious Activity Report when they detect a known or suspected violation of Federal law or a suspicious transaction related to a money laundering activity or a violation of the Bank Secrecy Act. This section applies to all national banks as well as any Federal branches and agencies of foreign banks licensed or chartered by the OCC.
https://www.occ.gov/topics/compliance-bsa/bsa/bsa-regulations/index-bsa-regulations.html
The moral of this story is don't do drugs, regardless of which state you live in and make sure your clients report the income from illegal activities, or better yet, don't do tax returns for someone you know is dealing drugs. Just my .02 worth.
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