Recently, the State of Pennsylvania announced that its successful efforts of identifying businesses using zappers, technology used to evade taxation, resulted in the recovery of over $6 million of lost tax revenue. According to local reports, the businesses identified were all in the restaurant industry and in the Allentown, PA area. Because investigating potential zapping establishments is currently time and resource intensive, crackdowns are getting little press coverage. Nonetheless, the repercussions of being caught using revenue-skimming technology can be devastating to local businesses and can include paying back taxes, penalties, criminal fines, and even potential prison time.
For decades, some businesses have attempted to dodge federal, state, and local taxes by illegally skimming cash transactions. Skimming typically involves a cash-based business recording only a portion of their cash proceeds while pocketing the remainder without paying tax on it. More sophisticated and record-oriented business owners that employ skimming schemes keep two sets of records: one that is secret and reflects the true amount of revenue collected and another that records the modified, skimmed amount that is reported to the IRS, state and local taxing authorities.
As the U.S. population becomes increasingly dependent on the use of credit cards and other forms of non-cash payment, businesses looking to avoid taxes have created a demand for new tax skimming technology. Zappers, the name given to software-based skimmers, electronically remove credit card transactions from the books on a pre-determined cadence. For instance, a skimmer may be set up to disregard every fourth or fifth credit card transaction. The point-of-service system will process the transaction and collect payment from the customer, but will not account for the revenue collected.
It likely comes as no surprise that the implementation of zapping technology has caused a measureable tax loss. Some state governments have estimated that the total tax loss among all 50 states is over $21 billion annually. In recent years, California has updated their sales and use tax laws, making the purchase, possession, or use of sales suppression devices or software illegal, if the user has the intent to defeat or evade paying tax. Establishment of intent is likely a low hurdle to clear, considering that zappers are not marketed for any other purpose.
As we indicated in our prior coverage of zapping technologies, federal and state governments continue to develop strategies to fight forms of tax evasion, like the use of zappers. Business owners should take precautions to ensure that they are in compliance with federal and state tax laws. If your business has been employing tax strategies that are questionable or have received a notice of a tax audit, you should consult with a civil / criminal tax defense attorney as soon as possible. A tax lawyer is particularly helpful during any interaction with federal or state tax authorities, ensuring that no statements are made, and no evidence is voluntarily produced that can be used against you at a later date as a criminal tax admission.
The Tax Law Offices of David W. Klasing have extensive experience representing taxpayers from all walks of life in a myriad of civil and criminal tax defense situations. Whether you are a business owner looking to come into compliance with the tax laws or an individual that has received notification of an IRS or state tax audit, our zealous advocates can help you develop an effective tax strategy. Do not lose sleep over tax troubles. Contact that Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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