Call Now (800) 681-1295

Tax Evasion Guilty Plea by Former Owner of Popular Buffet Illustrates Aggressive California EDD Audit and Enforcement Tactics

Table of Contents

    Restaurant and business owners located in dynamic and bustling metropolitan area such as Los Angeles or Orange County may come to believe that the California Economic Development Division, Franchise Tax Board, IRS, or other tax enforcement agencies cannot possibly effectively police all the economic activity in the area. Other business owners may believe that the cash receipts they receive are untraceable by tax authorities and creates an opportunity to underreport income or payroll expenses.

    Unfortunately, these assumptions are recklessly Illegal and can create a scenario where potential harsh civil and criminal tax penalties – including a prison sentence – are justified. Auditors for federal and state tax agencies simply follow the paper trail. If a company’s books or records are missing, disorganized, believed to be fraudulent, or otherwise not reliable, the agent may even set aside the books and resort to a sample observation audit or markup audit to determine the company’s sales and taxable revenue.

    Restaurant Owner Pleads Guilty to Payroll Tax, Workers’ Compensation Insurance Fraud

    Chang Tai Lin was the owner of the popular AA Buffet located in Salinas, California. While the business is popular with local businesses and workers, it also apparently attracted numerous tour buses and tourists. Thus, the business seemed to be well-frequented and profitable for its owner. However, it appears that the legitimate business profits were not enough and the business owner engaged in certain fraudulent practices to illegally reduce business compliance costs and taxes.

    The businesses’ tax troubles bubbled to the surface in May of 2015 when a District Attorney’s Office [MCDA], Workers’ Compensation Fraud Unit began an investigation. The investigation initially focused on obtaining an array of documents from local law enforcement, state tax and government agencies,  and the buffet’s workers’ compensation insurance company. In March 2016, a search warrant was served on the business and the business owner’s home.

    The investigation revealed a fraud scheme that involved underreporting the restaurant’s number of employees and payroll obligations. The scheme involved misrepresenting the number of workers who were employees. To conceal the existence of a large percentage of his employees, the defendant paid certain worker wages in cash. The owner did not report these payments on 1099’s while considering these employee’s independent contractors, or on W2’s as employees. Additionally, these cash basis workers were not reported for works comp insurance purposes, thereby allowing him to obtain workers’ compensation coverage at a significantly reduced premium. The restaurant owner also failed to report and properly account for payroll taxes for the off the books employees.  This pattern is also quite common where a restaurant employs illegal aliens which raises a whole host of other types of civil and criminal exposure.

    What Consequences Can a Business Owner Face for Payroll Tax Fraud in California?

    Business owners who attempt to pad profits through payroll tax fraud can face an array of serious consequences. Since payroll tax fraud is often accompanied by additional types of fraud including workers’ compensation fraud, the business owners, and responsible parties may face a multi-front battle. Since payroll tax issues also have a federal component, taxpayers accused of this type of act should also be prepared to meet the challenge of a federal payroll tax audit or allegations of wrongdoing.

    As for the workers’ compensation insurance fraud, this is a California state crime which is punishable by a state prison sentence of up to five years. A monetary penalty of up to twice the amount gained due to fraud can also be imposed. As for the state payroll tax evasion charges, upon conviction, an individual who willfully violates the law can be punished with a prison sentence of up to three years and up to a $20,000 fine as well as federal criminal prosecution, penalties and restitution.

    If the matter also impacted federal payroll tax obligations, then additional civil penalties are possible.

    Work with a Tax Lawyer When Your Business Is Facing an Audit

    If your business is facing questions regarding payroll taxes, sales tax, income tax, or other tax obligations the attorneys and tax professionals of the Tax Law Offices of David W. Klasing may be able to fight for you strategically and aggressively. Mr. Klasing is a dually certified attorney and CPA who can put his experience as a former public auditor to work for you. To schedule a confidential consultation online click here or please call 800 681-1295 today.

    Here is a link to our YouTube channel: click here!

    Employment Tax Representation video: click here!


    Tax Help Videos

    Representing Clients from U.S. and International Locations Regarding Federal and California Tax Issues

    Main Office

    Orange County
    2601 Main St. Penthouse Suite
    Irvine, CA 92614
    (949) 681-3502

    Our headquarters is located in Irvine, CA. Our beautiful 19,700 office space is staffed full-time and always available for our clients to meet with our highly qualified and experienced staff of Attorneys, Certified Public Accountants and Enrolled Agents. We also offer virtual consultations and can travel to meet with clients in one of our satellite offices.

    Outside of our 4 hour initial consultation option, we do not charge travel time or travel expenses when traveling to one of our Satellite offices, or surrounding business districts, where it is necessary to meet personally with taxing authority personnel, make court appearances, or any in person meeting deemed necessary for the effective representation of a client. To make this as flexible, efficient, and convenient as possible, David W. Klasing is an Instrument Rated Private Pilot and Utilizes the Firms Cirrus SR22 to service client’s in California and in the Southwest by air. Offices outside these areas are serviced via commercial jet airlines. None of these costs are charged to our clients.

    Satellite Offices

    (310) 492-5583
    (760) 338-7035
    (916) 290-6625
    (415) 287-6568
    (909) 991-7557
    (619) 780-2538
    (661) 432-1480
    (818) 935-6098
    (805) 200-4053
    (510) 764-1020
    (408) 643-0573
    (760) 338-7035
    (602) 975-0296
    New Mexico
    (505) 206-5308
    New York
    (332) 224-8515
    (512) 828-6646
    Washington, DC
    (202) 918-9329
    (702) 997-6465
    (786) 999-8406
    (385) 501-5934