Luciano Libreri, 67, and son Ignazio Libreri, 36, co-owners of Da Luciano Pizza and Pasta, a popular restaurant in Chicago’s River Grove neighborhood, were each charged with one count of felony tax fraud earlier this month. Prosecutors allege that the Libreris engaged in tax evasion by deliberately failing to provide information about multiple cash transactions to the business’ accountant. As a result, tax returns filed during the period from 2010 to 2013 underreported the restaurant’s income by several hundred thousand dollars per year. If convicted, not only will the Libreris receive burdensome felony records, but further, may be facing prison time and/or costly restitution orders.
In 2003, father-son duo Luciano and Ignazio Libreri opened Da Luciano Pizza and Pasta. In a competitive industry with a first-year failure rate of around 17% according to Forbes Magazine, Da Luciano quickly became a success story, attracting customers with its family-style offerings and gluten-free menu. Unfortunately for the Libreris, a series of financial decisions allegedly made from 2010 to 2013 would lead to serious criminal charges, which the family is now in the process of responding to.
According to court records, Da Luciano’s co-owners failed to report cash transactions amounting to hundreds of thousands of dollars, “conceal[ing] almost all of the cash receipts” from their accountant, for several consecutive years. Because the accountant was unaware of these receipts, they were omitted from tax returns filed for the business, leading to tax evasion charges. For instance, in 2012, the restaurant reported gross receipts totaling approximately $897,000, when prosecutors allege that the actual figure was “substantially” greater.
The charges against the Libreris stem from a court document known as an “information,” in contrast to criminal charges which are initiated through an indictment, which was used, for example, to launch the ongoing case against Paul Manafort and Rick Gates. While informations and indictments are similar in that both formally set forth criminal allegations, an information, unlike an indictment, is not issued by a grand jury. In federal felony cases, indictments generally must be utilized unless the defendant waives his or her right to an indictment, which typically occurs in cases where the defendant and prosecution have come to a plea agreement. Thus, information-based charges generally suggest that the defendant intends to voluntarily enter a guilty plea. The Internal Revenue Service’s (IRS) Criminal Investigation Division (CID or CI) reported a combined total of 2,761 informations and indictments during the 2016 fiscal year, though the statistics do not specify how many were informations and how many were indictments.
According to their attorney, the Libreris “expect to resolve the case short of trial.” If the defendants plead guilty to the charges, they may be facing substantial penalties. The federal statute establishing penalties for tax evasion, 26 U.S. Code § 7201 or IRC § 7201 (attempt to evade or defeat tax), authorizes the government to impose a maximum fine of up to $100,000, and/or a maximum prison term of up to five years, depending on the circumstances of the case. (Note that in cases where the defendant is a corporation rather than an individual taxpayer, the fine may be as great as $500,000.) Moreover, taxpayers risk debilitating civil penalties: “up to 75% of the underpayment of tax attributable to fraud, in addition to the taxes owed,” to quote the IRS. You can read more about the difference between criminal tax evasion and civil tax fraud here.
Many restaurants conduct a significant portion of their transactions using cash, which, from the government’s perspective, creates ample opportunity for abuse of the U.S. Tax Code. Unfortunately for law-abiding restaurant owners (and operators of other cash-intensive businesses, such as jewelry stores, pawn shops, and convenience stores), this tends to increase the likelihood of being targeted for an audit. In addition to the IRS, cash-intensive businesses also face scrutiny by regulatory agencies that operate at the state level, such as the California Franchise Tax Board (FTB).
If you operate a restaurant or other business that primarily conducts transactions in cash, you may be at risk for an IRS tax audit. If you are concerned about your business’ current or previous accounting practices, or if you are worried about a potential criminal investigation, it is prudent to seek guidance from a skilled and experienced business tax attorney or tax evasion defense lawyer as soon as possible. Even if your errors were unintentional rather than willful, you are still in jeopardy of costly civil penalties, which could be financially debilitating to the business you have worked so hard to build. It is in your best interests to consult with a California tax lawyer as soon as possible, as penalties tend to compound the longer noncompliance persists.
At the Tax Law Office of David W. Klasing, our zealous, meticulous, and respected team of tax attorneys, CPAs, and EAs combines decades of experience assisting business owners with audits, egg shell audits, and criminal investigations, and will work tirelessly to mitigate penalties while bringing you back into compliance. To arrange a reduced-rate legal consultation concerning an audit, a criminal charge, or general tax planning advice for your business, contact us online, or call the Tax Law Office of David W. Klasing at (800) 681-1295 right away.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.
Here is a link to our practice video on warning signs than an audit has gone criminal.
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