Prosecutors said that unlicensed and illegal gambling businesses allowed their customers to place bets through websites Feinman controlled.gettyA California man who admitted operating an illegal offshore gambling business, laundering cash proceeds, and evading federal income taxes on more than $4 million in income has been sentenced to 27 months in federal prison and ordered to pay $1.47 million in fines and restitution.Jason Noah Feinman, 52, of Calabasas, was sentenced after pleading guilty to one count each of tax evasion, operating an illegal gambling business, and money laundering. The case centered on a Costa Rica-based operation that federal prosecutors said helped illegal gambling businesses take bets from customers, including customers in California, through websites Feinman maintained.Gambling and Money LaunderingFeinman’s business was not a gambling website in the traditional sense—you didn’t visit his site to play the odds. Rather, prosecutors said that unlicensed and illegal gambling businesses allowed their customers to place bets through websites that Feinman controlled. That conduct violated both state and federal laws.The operation generated substantial cash, and Feinman took steps to conceal it, typically by exchanging cash for checks. Between May 2018 and January 2024, Feinman gave one customer more than $1.5 million in cash and received 18 checks payable to him or his businesses for that amount. In total, prosecutors said, he exchanged between $1.5 million and $3.5 million in cash for checks, which formed the basis of the money laundering charge.Money laundering is the process of converting “dirty money,” meaning that it was from illegal sources, into "clean” money, or legitimate cash, so that it can't be traced. The easiest way, of course, is to run the cash through a bank or other financial institution and replace those bad dollars with shiny new ones—that's why federal laws require that large transactions be reported.When cash comes from illegal gambling and is then swapped for checks payable to individuals or related companies, the transaction pattern can become evidence of concealment. The government’s theory was that Feinman converted illegal proceeds from gambling into checks because they appeared more conventional and were easier to deposit, transfer, or use.Tax EvasionTax evasion is the illegal and intentional act of underpaying or failing to pay taxes owed. Between 2018 and 2022, Feinman earned income from the illegal gambling business but did not properly report and pay tax on it. Prosecutors said he evaded taxes on approximately $4.2 million in income. In 2020 alone, he earned approximately $1.8 million, yet reported no taxable income on his federal income tax return and paid no tax for the year.When your lifestyle doesn’t support the numbers on your tax return, it can raise flags, as it did here. But that isn’t enough to prove willfulness, which is a key element of tax evasion. Law enforcement relies on bank records, checks, tax returns, and other communications can be used to prove receipt of unreported income and intent to evade. And those are exactly the kinds of records that IRS Criminal Investigation (CI) agents are trained to find and interpret. Illegal Income Is Still Taxable IncomeThe case is also a reminder of a basic rule that still surprises some taxpayers: Illegal income is still taxable income. A taxpayer who earns money from an illegal gambling operation, narcotics trafficking, fraud, embezzlement, or other unlawful activity cannot avoid tax merely because the underlying business is illegal. There’s even a reminder from the IRS about this—with instructions on how to report it—in Pub 525: “Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment activity.”Failure to report that income can create a separate federal tax crime, independent of the underlying illegal activity. Even if the feds can’t prove that the activity is illegal, failure to report the income can still land you in prison (just look at Al Capone).Offshore Doesn't Mean UnreachableJust because Feinman’s operations were offshore didn’t protect him from U.S. prosecution. Prosecutors said the business was based in Costa Rica, but the gambling activity involved customers who lived in California and used websites Feinman maintained. Offshore gambling operations frequently market themselves as outside the reach of U.S. law, but that’s not true. The location of a server, website operator, or business entity is not necessarily controlling when U.S. customers, U.S. financial channels, and U.S. tax obligations are involved. The SentenceFeinman was sentenced to 27 months on each of the three counts, to be served concurrently (concurrent sentences are served at the same time, so he’ll serve 27 months, not 81 months).The sentence followed Feinman’s guilty plea. He had faced a maximum penalty of 10 years in prison on the money laundering charge and five years each on the tax evasion and illegal gambling charges. As in all federal cases, the actual sentence is determined by the judge after considering the U.S. Sentencing Guidelines, the nature and circumstances of the offense, the defendant’s history and acceptance of responsibility, deterrence, and other factors under federal sentencing law. Feinman’s family submitted letters pleading his case. It must have helped since prosecutors sought more than the 27 months he received.Feinman was also ordered to pay $1,324,449.00 in restitution and a $150,000.00 fine (plus interest).The Investigation The investigation was conducted by CI and Homeland Security Investigations. That pairing is common in cases involving offshore activity, cash movement, and potential cross-border criminal infrastructure. CI focuses on tax crimes, money laundering, and financial fraud, while Homeland Security Investigations often handles transnational criminal activity, illicit finance, and cross-border schemes.ForbesAI And Less Immigration Work Will Shift IRS Criminal EnforcementBy Kelly Phillips ErbForbesIRS Enforcement Takes Another Big Hit As Budget Request ShrinksBy Kelly Phillips Erb