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Clarksville Tennessee Nail Salon Owner Pleads Guilty to Tax Evasion

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Clarksville Tennessee Nail Salon Owner Pleads Guilty to Tax Evasion

 

A Clarksville Tennessee businessman recently pled guilty to a single count of tax evasion and faces a sentence that could potentially include five years in prison and up to $250,000 in fines. According to allegations, the defendant underreported cash salaries paid to employees and misclassified employees as independent contractors.

Cash payments and misclassified employees are two key issues that the IRS and most state taxing authorities want to know more about every year. If your returns feature either of these red flags, it is substantially more likely that you may find yourself or your business the target of a government audit. Moreover, paying employees or subcontractors in cash that does not ultimately get reported on a W2 or a 1099 can be considered aiding and abetting income tax evasion by itself because employees and subcontractors are not likely to report income that is not documented by a W2 or a 1099.

For concerns about impending or possible future audits or criminal tax investigations based on cash payroll or employee misclassification issues, you would be wise to contact the Dual Licensed Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing. Reach out to us as soon as possible at (800) 681-1295.

Owner of Call It Pho and Venus Nails Spa Faces up to Five Years in Prison, $250k Fine

On March 23, a Clarksville, Tennessee business owner entered a guilty plea on tax evasion charges in federal court. Andrew Huy Nguyen, owner of multiple businesses on Wilma Rudolph Boulevard, admitted to concealing wage payments to employees of the businesses, culminating in a total tax loss of over $428,000.

Nguyen is the owner of Call It Pho restaurant and Venus Nails Spa, where he allegedly avoided paying employer’s taxes by using several underhanded reporting tactics. According to court documents, Nguyen would fail to issue W-2 forms to employees, instead offering payments in cash, personal checks, or a combination of the two.

Nguyen would also disguise wages by classifying them as nonemployee compensation. To do this, Nguyen would issue 1099 forms meant for independent contractors to employees. In doing so, Nguyen would represent employees of Call It Pho as though they actually worked for Venus Nails Spa, and vice versa.

During the tax years of 2017, 2018, and 2019, Nguyen paid Venus Nails Spa employees at least $946,716.24 in cash, which he did not report on the 1099 forms that he issued to them. This caused his employees to file false tax returns that did not report all their income, which resulted in a tax loss of approximately $315,856. In addition, Nguyen willfully failed to withhold and pay over to the IRS approximately $78,667 in employment taxes and federal income taxes from his employees’ paychecks at Call It Pho.

Nguyen was officially charged on March 3 with multiple counts but would ultimately plead down to just one count of tax evasion as part of a plea agreement. Nguyen faces up to five years in prison and a $250,000 fine upon sentencing, which is scheduled to occur on September 23, 2022. As part of the plea deal, Nguyen has agreed to pay immediate restitution to the IRS of $428,620.12.

The IRS is Looking for Red Flags in Your Returns

The Nguyen case is a prime example of two of the major red flags that will catch the eye of the IRS or a State taxing authority on a tax return: running a cash payroll and overuse of 1099s. Below are some of the issues with these red flags and how you can look to resolve them today.

Paying Employees in Cash

Small businesses that deal primarily in cash are some of the most frequent targets for IRS audits and investigation. This is not because there is anything inherently wrong with paying employees in cash. However, in the eyes of the IRS, these are typically the situations that are most ripe for tax filing mistakes and willful abuse.

If you own or operate a business that does a substantial amount of your payroll in cash, it is imperative that you have a dedicated Dual Licensed Tax Attorney and CPA on your side. Even if you remain fully compliant at all times, the IRS will likely show up at your door ready to seek out any inconsistencies. If you do have some inconsistencies in your past filings due to the complicated nature of your business’ revenue and payroll operations, you can act now to rectify these mistakes with the help of your Tax Attorney to reduce or avoid any potential penalties you could face were the government to discover them first.

Using 1099s Instead of W-2s

As business models become more unique and creative, so too do the definitions of employment. Key to any small business is a thorough understanding of the differences between a traditional employee and an independent contractor. California has all but regulated subcontractors out of existence in most industries.

Many business owners mistakenly believe that they can simply choose which classification works for them, which provides tax and insurance coverage savings for the company. It may be true that your business requires the services of many independent contractors relative to traditional employees. However, you should also know that this may provoke the suspicions of the IRS.

Proper classification of an individual as either an employee or an independent contractor needs to answer to a number of determining factors. An independent contractor will typically do business with multiple other entities and come into a particular task with their own knowledge or expertise, requiring no training. Independent contractors are only responsible for completing the tasks in their contract, otherwise known as a Scope of Work (SOW). To that end, independent contractors typically work their own hours, set billing rates, and submit invoices for services, rather than simply receiving a salary.

If you are not sure how to classify an employee or independent contractor or believe that you may have misclassified an employee in the past, we recommend that you reach out to one of our Dual Licensed Tax Attorneys and CPAs to get specified analysis and competent legal advice on how to proceed.

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Avoid Audits and Criminal Charges with the Help of the Tax Law Offices of David W. Klasing

Call our Dual Licensed Tax Attorneys and CPAs at (800) 681-1295 today to discuss your concerns about an upcoming or potential audit or criminal tax investigation on your small business.