It's mostly a means of allowing for criminal investigations into large organized criminal groups. AS unless they are exceptionally careful their lifestyles can be radically out of sync with their purported incomes. IRS investigations often allow federal charges for these groups which in turn can be used to help other investigations. The regs do say that they can't report you for your criminal income but most people wouldn't believe that so it's doubtful many do.
Templarofsteel t1_j6hb8i5 wrote
Reply to ELI5: Why does the IRS want your illegal income declared on tax returns? by xCreamPye69
It's mostly a means of allowing for criminal investigations into large organized criminal groups. AS unless they are exceptionally careful their lifestyles can be radically out of sync with their purported incomes. IRS investigations often allow federal charges for these groups which in turn can be used to help other investigations. The regs do say that they can't report you for your criminal income but most people wouldn't believe that so it's doubtful many do.