Business owners are still facing a rather difficult economic climate. While the U.S. economy has recovered since the low point of the Great Recession, in many cases the recovery has been uneven and some communities and businesses are still struggling. In many cases, cheating on one’s taxes through underpayments or by receiving excessive refunds can seem like a way to catch up on business expenses. But that appeal is illusory and typically results in even more serious financial and potentially criminal tax issues.
In other instances, pure greed and the desire to earn and live beyond one’s means can overwhelm our sense of responsibility to society and to our community and cause business owners to engage in various types of fraud. According to prosecutors, this is what occurred in Connecticut tax fraud case where a man avoided paying approximately $16 million in tobacco taxes to the Connecticut government. Recently, the man pleaded guilty to charges related to the fraud in two separate federal cases.
According to court documents, the fraudulent scheme commenced in 2006 after Satish Kumar, of Longmeadow, Massachusetts, acquired a wholesaler warehouse business. The business apparently provided gas station and convenience store owners with a supply of cigars and other tobacco products including smokeless tobacco. Over the course of, roughly, the next six years, Mr. Kumar engaged in a systematic scheme to avoid payment of the requisite taxes. According to the prosecutor’s characterization of Mr. Kumar’s actions, he would file false tobacco tax returns with Connecticut state agencies. Typically, the tax paid by Mr. Kumar was just two percent of the total tax owed. While Mr. Kumar sold the warehouse business in 2008, he continued to profit from the ongoing tobacco sales tax fraud.
During a similar timeframe, Mr. Kumar also ran a liquor store that engaged in unlicensed wire transfer business. The business would cash checks despite being unregistered and unauthorized to do so and receiving warnings from the store’s bank about the illegality of the practice. Nearly 200 fraudulent income tax return checks obtain through false filings and false denies were cashed at the business. The checks had a total value of $1.2 million.
Mr. Kumar faced five separate criminal counts in his first federal case and a single count in his second case. In the first case, Mr. Kumar was charged with and pleaded guilty to one count of money laundering, one count of conspiracy to defraud the U.S. government, and three counts of wire fraud. The wire fraud charges carry a potential sentence of up to 20 years in prison and three subsequent years of supervise release. A fine of up to $250,000 can also apply. Money laundering charges can carry up to a 10 year federal prison sentence along with a fine of up to $250,000 and supervised release. Conspiracy to defraud the U.S. government along with running an unregistered wire transfer business can be punished by up to five years in federal prison, a fine of $250,000, and three subsequent years of supervised release.
California businesses selling cigars, cigarettes, smokeless tobacco and other tobacco products containing at least 50% tobacco must comply with their tax duties. In California, this obligation is enforced by the California State Board of Equalization and is administered through a tax stamp system. Companies that attempt to avoid this tax by dealing through unlicensed distributors, fail to register or meet other administrative duties, traffic cigarettes across state lines, or who otherwise violate the federal Prevent All Cigarette Trafficking (PACT) Act or the Jenkins Act are likely to face a state-based BOE investigation or a federal Department of Justice inquiry. If prosecuted, you will face penalties that can deprive you of your freedom and illegitimate gains.
The Tax Law Offices of David W. Klasing can advise business owners as to the proper handling of all types of business taxes including tobacco taxes, other excise taxes, employment taxes, and payroll taxes. If you have already come under investigation or are facing tax charges, we are experienced litigators who fight aggressively to mitigate the situation faced by business owners. To schedule a reduced-rate consultation at our Los Angeles law offices call 800-681-1295 today or contact us online.