Many Californians have experienced the frustration of finding crumpled up receipts in their pockets or at the bottom of their purses. So many of the tiny transaction records are just that, tiny. Most receipts are not for big-ticket items and largely represent de minimus transactions that we make on a daily basis. Buying a cheeseburger, a pack of gum or even a bottle of water will generally yield a receipt. In many instances, a vendor may just hold on to the receipt and toss it in the trash. So would you be surprised to learn that requesting a record of your purchases in the form of a receipt could help prevent crime? The California Board of Equalization sure hopes that you are — and that you will take up the practice. Does your business need audit representation? The Board of Equalization is cracking down on businesses trying to cheat on taxes. An offer in compromise might be your only chance if the BOE catches you.
The Board of Equalization is essentially the equivalent of the IRS for the State of California. They are responsible for the collection and administration of the taxes within the state. They target both individuals and businesses that fail to pay their share of taxes each year. It is likely no surprise to learn that the ears of California BOE agents perked up when they heard of a scam by business owners to cheat our state government out of nearly 215 million dollars each year.
According to state taxing authorities, some small and medium sized businesses are using a new technology to help cheat on their taxes. The software, sometimes referred to as a “zapper”, alters the point-of-sale records of a company and reduces the amount of revenue derived from transactions. In effect, this will lower the total taxable income and require businesses to pay much less in California income and sales taxes than they actually should be.
Most of the record altering occurs with regard to cash-sales. When a credit card is used, there are generally third-party records that are kept and maintained by the credit card processing company and therefore creates too much of a risk of being caught where these sales are fraudulently omitted. But cash transactions are completely susceptible to being fraudulently altered and looking at the data provided by the BOE, it appears that the trick is being taken advantage of plentifully. So much so that officials used their power to do something about it.
Early last year, the BOE sponsored a bill that was eventually passed by the California legislature that made it a crime to utilize the “zapper” software. Any businesses found with the technology can be fined up to 10,000 dollars and the owners can face up to three years in a state prison for income and sales tax evasion. Business owners caught altering their transactions will also be required to pay any sales taxes that were withheld in prior years due to the scheme and pay any and all fines and penalties associated with the dodged sales tax.
The California Board of Equalization has asked the public for their help. When customers ask for a paper receipt, it becomes more difficult for a business owner to change the records of the sale, the BOE says. Though most find a receipt for a 99-cent soda to be an annoyance, the truth is, it could potentially save the state some serious money.
On the flip side of the story, business owners should make sure that they are not putting themselves in a position that could draw undue attention by the Board of Equalization or the IRS. In many cases, business owners are unaware of an investigation until undercover agents have already gathered enough evidence to warrant a full criminal investigation. Investigators will covertly observe the operations of a business to determine what percentage of sales are cash based and how many are credit based. If the sales tax return for the establishment shows a significant variation in what was observed and what was reported, a BOE or IRS criminal investigation may be conducted and criminal charges could be filed.
If you are a business owner that has a significant amount of transactions what involve cash, you should take care to ensure that the software that you employ is legal and not a prohibited “zapper”. Furthermore, if you are the subject of a BOE audit or investigation, and have used “zapper software” it is in your best interest to consult with an experienced criminal tax defense attorney. Many business owners go into audits with the BOE or IRS and think that they can easily talk their way out of a problem, but this is rarely the case in our experience. Without the aide of a tax attorney with sales tax audit experience, mistakes will be made and the taxpayer will likely dig himself or herself a bigger financial hole than they are already in not to mention the increased exposure for tax crimes that will likely inure to the unrepresented tax cheat.
Is your business cheating on taxes with “zapper” software? If so, an offer in compromise from the BOE might be your only way out.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have years of experience representing individuals and businesses in audits with both the IRS and the California Board of Equalization. We also have extensive experience assisting clients with California sales tax audits and related issues. When your financial livelihood and personal freedom is at stake, it is essential that you have the best representation on your side. Contact the Tax Law Offices of David W. Klasing at 800-681-1295 for a reduced rate consultation, today.