Gas Station Owner Faces Sentencing Following Tax Evasion, Fraud Conviction

Business owners in a broad array of industries may deal primarily or extensively in cash. Business operations organized around retail gas sales at a gas station are just one of the types of businesses that deal extensively in cash. Gas stations also often have a convenience store component which is another type of business that frequently deals in cash.

While there is nothing inherently wrong with dealing in cash, businesses of this type should expect to face additional scrutiny when filing taxes. This is because the IRS views cash transactions as presenting a greater opportunity for fraud, tax evasion, and other misconduct. As such, many owners of businesses dealing extensively in cash come to face significantly more rigorous audits than expected.

Gas Station Owner Underreported or Did Not Report Sales, Use Tax Obligations

35-year-old Adnan Rashid was a relatively successful business owner who appears to have found and replicated success in the retail gasoline sales industry. Mr. Rashid was the owner of two Marathon gas stations and a partner with a 50-percent ownership stake in two more stations. Unfortunately, Mr. Rashid’s apparent business savvy was based, at least in part, on highly questionable tax actions.

According to prosecutors, Mr. Rashid fabricated and submitted state sales and use tax documents that he knew to be false. Prosecutors also accused Mr. Rashid of preparing and submitted false federal tax returns for the gas station business for the 2009 and 2010 tax years. Due to these acts, Mr. Rashid faced a 20-count indictment for tax evasion, filing false tax returns, and mail fraud.

As part of a December 2016 plea deal, Mr. Rashid pleaded guilty to tax evasion and mail fraud. As part of his plea, Mr. Rashid admitted that he underreported or did not report all of the income at each of the four gas stations. He also admitted to concealing this fact from his accountant by altering the stations’ raw sales data before providing it to his accountant. According to prosecutors, these activities resulted in greater than $41 million in unreported gross revenues for the business and roughly $1 million in concealed personal income.

At sentencing, Mr. Rashid was ordered to serve a 21-month federal prison sentence. He was also ordered to pay restitution on his unreported and untaxed gains in the amount of $1.5 million to settle federal corporate and state sales tax liabilities. Mr. Rashid also agreed to pay an additional $1.28 million to the state and $200,000 to the IRS in restitution.

Why Is It So Dangerous to Commit Tax Crimes with a Cash Business?

As mentioned earlier in this post, business owners whose company or organization deals extensively in cash are typically subject to more a more rigorous review of their activities. Once again, this is because the IRS and state tax agencies believe that cash transactions present a greater opportunity for abuse. As such, businesses in industries where cash transactions are common are more likely to face an audit or frequent audits.

Thus, one can begin to see the problem when a business owner comes to believe that he or she can take improper actions with impunity because transactions are in cash. Despite conducting transactions in cash, the IRS and state tax agencies have methods to determine a company’s volume of sales and number of employees. Thus, when a business owner attempts to increase profits or keep the company afloat through tax fraud, these acts are highly likely to be detected as part of a routine audit. Red flags will be raised when IRS auditors discover:

  • A business owner who cashes client checks at numerous check cashing services.
  • A business owner who pays employees in cash.
  • A business owner who fraudulently claims losses year after year.
  • A business owner who underreports sales receipts or fails to report business revenues.

Business owners who face an audit when they have engaged in tax fraud, tax evasion, or other improper acts are placed in a delicate situation. On one hand, they must avoid further compounding their potential liability by making false statements or otherwise obstructing the investigation or audit by impeding the administration of the U.S. Tax Code. However, one the other hand, the business owner certainly doesn’t want to provide information leading the auditor directly to the potential fraud or misconduct. All the while, they should watch for signs that the audit has “gone criminal.”

Work with a Strategic Criminal Defense Tax Lawyer When Facing a Cash Intensive Business Audit or Criminal Investigation

Any business that deals extensively in cash is subject to additional scrutiny. Whether you run a gas station, convenience store, bar, restaurant, home improvement or contracting business, or are involved in other industries where cash is common then you should take steps to prepare and protect your business from an audit or criminal tax investigation. Your goal should be to avoid a worst-case scenario where the discovery of underlying tax fraud or tax evasion is only an audit or investigation away. It is also worth noting that many a criminal tax investigation follow a state sales tax audit that has identified unreported cash sales.  The Tax Lawyers, CPAs and EAs of the Tax Law Offices of David W. Klasing can work to protect your business prior to or when facing a scenario of this type. To schedule a confidential, reduced rate consultation at our Los Angeles or Irvine law offices, call 800-681-1295 today or schedule online here.

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