According to a Department of Justice press release, a Massachusetts man pleaded guilty to a single charge of conspiring to defraud the United States by impeding the lawful actions of the Internal Revenue Service. This story highlights the dangers of attempting to outsmart the IRS or state taxing authorities while they are in the process of attempting to collect a tax debt. The story also evidences the importance of working with a trusted and experienced tax attorney.
According to prosecutors, Ayaz Ali Shah was the co-owner and operator of a carryout restaurant called “New York Fried Chicken and Pizza” that operated near Boston. Prosecutors at the Department of Justice alleged that Shah, together with his co-defendants, Muhamad Siuyab Khan and Khurshed Jehan Badshah, took affirmative steps to conspire to defraud the United States.
The IRS and the Department of Justice alleged in the indictments against the defendants that between 2012 and 2013, Shah and the other co-conspirators agreed to illegally skim certain amounts off of the books of the business including revenue and the corresponding cost of goods. This resulted in each of their individual tax returns reflecting less income for the business and therefore fraudulently resulted in a lower amount of taxes to be purportedly due.
Sentencing is scheduled for September and Shah faces up to five years in a federal prison for the conspiracy charge. Additionally, Shah will likely be ordered to serve a period of supervised release following his physical incarceration. Finally, Shah will likely be ordered to pay restitution to the IRS and may be subject to additional fines and penalties.
The behavior that Shah was accused of having engaged in is called “skimming” although it has been illegally employed by cash-intensive business owners for many decades, technology has increased its prevalence. Electronic skimming machines automatically skim a certain amount of transactions off of the records of the business that will be available for the preparation of the business’s tax return and in the event of an examination. Oftentimes when the government believes a skimming operation is occurring, undercover agents will be dispatched to observe the intake of cash at the point of sale. Such observation can typically uncover the average amount of cash that a business brings in and can give federal or state authorities enough evidence to commence a criminal prosecution.
If you have engaged in skimming or believe that your business may have incorrectly accounted for sales revenue, it may be in your best interest to discuss the situation with an experienced tax defense attorney. You should also realize that a sales tax audit will often flag unreported cash sales where the CDTFA sends out XYZ letters to all of the companies that supply you your goods that are sold. They will then use a mark up methodology to determine what sales should have been rather than what you reported. A sales tax audit can be your worst nightmare as the results of such an audit are automatically communicated to the FTB and the IRS especially where unreported cash sales are noted on the income tax returns.
A seasoned business tax lawyer will assist in determining the best course of action. In most scenarios, getting out in front of a tax situation will yield better results that those where the IRS or state taxing authority initiates the inquiry.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing taxpayers from all walks of life. Whether you are a business owner facing a sales and use tax audit or you have received notice that your individual return is being examined, our team of zealous advocates are standing by to help you develop a sound legal strategy that will keep your personal and financial interests at the forefront of importance. Do not lose sleep over the possibility of tax evasion or other tax-related charges from the IRS or state taxing authorities. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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