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Yes, if your income source is from something illegal you really do have to pay taxes on it. And theoretically, if you listed your occupation as drug-dealer they could not use it against you.
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I remember reading things like this many times in the help files that came with Turbo Tax back when I used to use it. I've been trying to verify it, but I only found counter examples:
http://en.wikipedia.org/wiki/Fifth_A...s_Constitution
<font color="green">In some cases, individuals may be legally required to file reports that call for information that may be used against them in criminal cases. In United States v. Sullivan, 274 U.S. 259 (1927), a case involving the Federal income tax, the United States Supreme Court ruled that a taxpayer could not use the Fifth Amendment to refuse to file a required income tax return. The Court stated: "If the form of return provided called for answers that the defendant was privileged from making[,] he could have raised the objection in the return, but could not on that account refuse to make any return at all. We are not called on to decide what, if anything, he might have withheld."
In Garner v. United States, 424 U.S. 648 (1976) the defendant was convicted in connection with a conspiracy to "fix” sporting contests and to transmit illegal bets. During the trial the prosecutor introduced, as evidence, the taxpayer's Federal income tax returns for various years. In one return the taxpayer had showed his occupation to be “professional gambler.” In various returns the taxpayer had reported income from “gambling” or “wagering.” The prosecution used this to help contradict the taxpayer's argument that his involvement was innocent. The taxpayer tried unsuccessfully to keep the prosecutor from introducing the tax returns as evidence, arguing that since the taxpayer was legally required to report the illegal income on the returns, he was being compelled to be a witness against himself. The Supreme Court agreed that he was legally required to report the illegal income on the returns, but ruled that the privilege against self-incrimination still did not apply. The Court stated that "if a witness under compulsion to testify makes disclosures instead of claiming the privilege, the Government has not 'compelled' him to incriminate himself."
Sullivan and Garner are viewed by some legal scholars as standing, in tandem, for the proposition that on a required Federal income tax return a taxpayer would probably have to report the amount of the illegal income, but might validly claim the privilege by labeling the item "Fifth Amendment" (instead of "illegal gambling income," "illegal drug sales," etc.)"</font>
That said, it would be hard to hide the source of online poker income because of electronic transaction records, so "taking the fifth" as to the source of gambling income in this case seems useless.
The question is, whether before or after this new law is enacted, am I breaking any laws by playing online poker in a business-like manner as a skilled player with an expectation of winning? I still think not, at least in my state. The New York laws all seem to exclude those "acting as a player" when defining a person profiting from or advancing gambling activity.
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4. "Advance gambling activity" A person "advances gambling activity" when, acting other than as a player, he engages in conduct which materially aids any form of gambling activity. [etc]
5. "Profit from gambling activity." A person "profits from gambling activity" when, other than as a player, he accepts or receives money or other property pursuant to an agreement or understanding with any person whereby he participates or is to participate in the proceeds of gambling activity.
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http://www.gambling-law-us.com/State-Laws/New-York/