Many owners of retail businesses where many transactions are carried out in cash can come to believe that the use of cash provides the cover and plausible deniability required to commit tax fraud. Others may simply believe that their pizza shop, sandwich store, gas station, or convenience store is simply too small for the IRS, DOJ, or other government agencies to devote attention or resources to investigating. Unfortunately, this assumption is rarely accurate. Many business owners who adhere to this type of approach can soon find themselves looking on in fear as federal agents seize documents, records, and assets from the business. It is also important to realize that any taxing authority be it State or Federal, Income tax or Sales Tax is very likely to criminally prosecute if a pattern of cash skimming is discovered especially if a “Zapper” program is used to hide cash sales.
The owners of an ostensibly successful pizza shop recently experienced this type of situation. Unfortunately, for business owners who play fast and loose with tax obligations and attract scrutiny and suspicion, auditors and investigators simply follow the paper trail.
On the morning of February 15, 2017, the owners of Giovanni’s Roast Beef & Pizza started their day with federal agents knocking on the door of their restaurant. Theodora Panousos, 63, and Konstantinos Panousos, 37, were served with search warrants authorizing federal agents to search the premises and remove potentially relevant evidence and materials. The search of the pizza and sandwich shop resulted in the seizure of various materials including safe deposit box keys. The agents also searched Theodora Panousos’ home.
According to federal agents and prosecutors, following the raids, one or both business owners went to a local bank where they maintained at least one safe deposit box. According to prosecutors, Theodora Panousos was captured on the bank’s surveillance cameras entering the bank with an empty tote bag and leaving the bank with the same bag fully stuffed.
After visiting the first bank, prosecutors claim that Panousos went to a second local bank. At this location, prosecutors claim that Panousos told bank employees that she had lost her safe deposit box keys and asked for employees to drill the locks to open the box.
However, before bank employees could take this action, federal investigators arrived on the scene and presented a search warrant. The agents discovered that one safety deposit box contained over $400,000 in cash. A second safety deposit box contained an additional $224,000 in cash.
The business owners are currently facing charges related to their obstruction of a federal tax crime investigation. The taxpayers both face two counts of “corruptly concealing a record, document or another object, and attempting to do so with the intent to impair the object’s integrity or availability for use in an official proceeding.” The taxpayers were under investigation for filing false tax returns and tax evasion. The taxpayers may yet still face additional tax charges stemming from their concealment of business income.
Aside from the charges mentioned above, it is also common for business owners in cash intensive industries who are caught engaging In tax fraud to have failed to meet all payroll tax obligations. The business owners may understate the number of employees at the location, pay workers under the table, misclassify employees as independent contractors or engage in a broad array of practices to reduce the company’s payroll tax obligations. While it is unclear if these practices were also present at these taxpayer’s business, these types of payroll tax schemes are reasonably common for business owners who are looking to reduce their tax obligations by any means necessary.
If you are concerned about the actions of a bookkeeper – even a long-time, trusted employee – don’t hesitate to get a second opinion. Tax problems can create major cash flow issues for a company and can result in a company winding down operations. In the case of payroll tax fraud, responsible parties such as the business owner can be personally liable for the unpaid taxes. These and other issues may come to light during a tax audit.
If you know that you have a history of cheating on your taxes and for some reason can no longer live with the exposure, we can enter you into a foreign or domestic voluntary disclosure and effectively remove the risk of subsequent criminal prosecution and get you right with the federal and state governments.
The Tax Attorneys, CPAs and EAs at The Tax Law Offices of David W. Klasing can assist business owners in assessing their books for problems before an audit or government raid. If we find problems, we can develop solutions that mitigate the civil and potential criminal tax consequences you will face while also bringing your business back into compliance with the law. To schedule a confidential reduced rate initial consultation, please call our law firm at 800-681-1295 or schedule online today.