Owners of retail stores and other businesses that deal extensively in cash probably already realize that they are a priority target for the IRS and state tax agencies, especially the Board of Equalization for Sales Tax Audits in California. The IRS and other tax agencies believe that extensive cash dealings provide a greater opportunity for tax fraud. Aside from this risk factor, sellers of highly regulated and taxed goods also have numerous tax obligations that must be satisfied.
Sellers of retail goods are generally obligated to account for and collect sales and use tax. Sellers of products like alcohol and cigarettes may also need to account for excise taxes on these products. Furthermore, these business owners must also manage standard tax obligations owed by all businesses. This includes accounting for, withholding and turning over payroll tax obligations. It also includes business or corporate income taxes. The IRS and other tax agencies frequently pursue liquor stores because there are a number of potential tax issues plus additional risk factors. Owners of establishments of this type are frequently well-served by engaging in a routine review of business and tax practices with a tax lawyer or CPA and obtaining representation when audited by a federal or state taxing authority.
Following a four-year investigation into an explosion and fire that damaged a Shakopee, Minnesota liquor store, the former owner of the store is facing numerous charges including tax fraud allegations. Following the November 9, 2012, explosion and fire at Hops and Vines Liquor Emporium (formerly WineStyles), police immediately suspected arson. An investigation that was started by the local police department eventually pulled in an array of federal enforcement agencies including the IRS and Bureau of Alcohol, Tobacco, Firearms, and Explosives.
According to the indictment filed against Randy Alan Lentz, the former owner of the liquor store, Lentz engaged in tax fraud by filing a false tax return. According to prosecutors, the owner of the store failed to report income from a separate business venture. A 2009 IRS audit found that Lentz failed to report and pay taxes on nearly $700,000 in revenue. At the time, Lentz agreed to pay the IRS the $190,000 in taxes he owed. However, even though he later inherited $400,000 Lentz utilized the funds to purchase the liquor store that authorities claim he would later burn down. Lentz faces one count of willful tax evasion for his acts.
In another tax matter, the potential consequences beer, wine, and liquor store owners can face due to tax fraud become abundantly clear.
Jeffrey Nowak was the co-owner and operator of several Las Vegas liquor store. Nowak and his co-owner believed the cash intensive nature of their operations would provide sufficient cover for their tax fraud scheme. Nowak and his co-conspirator kept two sets of financial records for the business. They used the fraudulent books to cover their practice of skimming cash receipts thus leading to underreported income. The co-owners presented only the fake books to their accountant. This resulted in the accountant preparing a tax return that did not accurately reflect the liquor stores gross receipts or taxable income.
Due to Nowak’s conspiring to defraud the United States and tax evasion, he was sentenced to serve a 41-month federal prison sentence. In addition, Nowak will serve three years of supervised release following his release from prison. Nowak was also ordered to pay restitution for the tax loss created by his actions.
Nowak’s co-conspirator also faced a harsh sentence as well. Ramzi Suliman pleaded guilty to conspiring to defraud the United States in 2014. He was sentenced to serve 12 months in federal prison also followed by three years of supervised release. Suliman was also ordered to repay approximately $428,000 in restitution.
If you routinely skim cash from the register, use zapper devices, or have assumed that cash receipts would allow you to conceal tax fraud, this mistaken assumption can have serious life, liberty and financial consequences. However, far too many business owners fail to address and correct income tax, payroll tax, and other tax problems until they are facing a tax audit or other criminal tax enforcement action. In California, such an action places certain business owners in a particularly precarious position because failure to pay taxes can result in the revocation of one’s license to sell alcohol or tobacco products.
The Tax Lawyers and CPAs of the Tax Law Offices of David W. Klasing can help you address tax concerns strategically. We work to bring you back into compliance with federal and state tax law while mitigating the potential tax, penalties and interest as well as criminal tax consequences you could possibly face. To schedule a confidential reduced rate consultation at our Irvine or Los Angeles tax law offices, call 800-681-1295 or contact us online today to schedule a reduced rate consultation.