I don't think these laws are meant for ordinary citizens. They are meant to aid policing orgs in catching and stopping criminals when police can't catch them. For example, the police can't come up with evidence that someone is selling drugs but they might be able to prove that someone is making money from drugs (which is not a crime) and not paying taxes on it (which is a crime.)
Yeah it's a very transparent way to have an excuse to throw someone in jail. In a past life I had some illegal income that I briefly considered reporting. Paying taxes on money is way cheaper than laundering it anyway (which I was never big enough to need to do to be clear).
The IRS promises to keep any admissions of illegal income from other government agencies, but in practice that's total bullshit and so anyone with a serious criminal empire would be a total idiot to actually report those taxes. You're damned if you do and damned if you don't.
