This clause came from the era of Al Capone, who famously boasted, "They can't collect legal taxes from illegal money." (Which was true at the time.)

They added this clause and then ended up catching Capone for tax evasion.

https://www.forbes.com/sites/kellyphillipserb/2020/10/17/al-...

I think the point of this is less that the IRS won't report it to someone else, but that it adds tax evasion as a reason a criminal can be pursued.

You are probably thinking it's like where contact tracers or census workers or whatever aren't supposed to report illegal immigrants because it's more important that they get accurate info than report people to ICE. I don't think that's the case with the IRS, they're probably more than happy to let other agencies know about your illegal activity.

I got it from here (https://money.cnn.com/2013/02/28/news/economy/illegal-income...):

"If you tell the IRS you made $1 million from stealing money or dealing drugs, does the agency tip off the cops? Legally, it can't, unless a law-enforcement agency gets a court order granting it access to a specific taxpayer's return. The IRS isn't supposed to proactively alert other agencies about misdeeds unless terrorism is involved. In that case, it still needs a court order to disclose anything, but the IRS can initiate the legal process on its own."

I have no idea if it is still valid or not.

Definitely still valid. When I trained as a tax preparer for the VITA program (which involves training specified by the IRS), this was a key point of the training. We were also told that information from clients was confidential and we couldn't report to anyone outside the IRS that someone was earning money illegally. The software (paid for by the IRS) even had built-in workarounds for reporting income for someone with a fake SSN on their W-2 because they didn't have work authorization.

I did this for multiple years, and some of the volunteers had been doing tax prep for over a decade. The same clients came in year after year. If we couldn't guarantee that their tax information was safe from ICE, they would definitely have stopped coming.