That is just a life law! 

So ask yourself if you want to rent to someone you know is breaking the law.-- The income they do report (which is probably very little) could put them into a protected class, making things like evictions harder (always check state and local laws when it comes to that).With all that being said, the risk is on you.  

If not, maybe target one with an in law/ accessory apartment (for the income)...Boom you are landlord... 

I even recently got my RE license to better understand the laws, the market, the process of buying and selling, and the industry as a whole.

The most important thing to note from this post is the fact that some the information you are using to make your decision is protected under fair housing laws.

You might chx with the governing law firm and/or Tax office. 

HOA laws are not only state-specific but in flux in some locales due to case law still being determined. 

Each may have different rights and each may have a different legal remedy required to remove them - this could be a lengthy process depending on your states laws. 

I'm also wondering what other laws they are willing to break if they are willing to do this? 

I am the nicest guy in the world, will try to help tenants any way I can, but I don't tolerate three things: not paying on time, willfully damaging my property, or causing any kind of legal or situational trouble with the city/neighbors/law.