Bars & Restaurants – Do Cash Sales Make You a Target?

Have you ever considered using the cash received from daily sales as your “secret profits” from the business? Or even if you pay your employees “cash under the table” or tip them out with the cash sales but never actually count the cash sales, your business might be a target to the IRS or state government. Even worse, YOU could be the target of a criminal investigation.

Here’s an example. Restaurateur, Eugene R. Britt III of Milledgeville, Georgia was sentenced to 24 months in prison for evading taxes in connection with his multiple bars and restaurants, and music festival beer sales.

From what we have learned, Eugene and his business partners rarely reported the cash they received from their daily sales. They used the cash for personal expenses, and paid their staff and helpers from the cash.  But then the government took a closer look.

Those unreported cash sales get discovered by the federal or state government in a number of ways. Here are just a few examples:

• A state sales tax audit shows a lower amount of reported sales (and related sales stax), as compared to the total sales shown on their other tax returns. The state charges the tax on the unreported sales. But also, the state communicates the suspicious facts to the IRS. After the state prosecutes, then the IRS asks the federal Department of Justice (DOJ) to do the same.

• A IRS tax audit shows that the business’s purchases (food, beverage, etc) was an unusually large percentage of the overall sales, indicating possible unreported sales. The IRS charges more tax, or options to have its Criminal Investigation Division look further. Again, the federal DOJ or state Attorney General could prosecute.

• The business fails to send an employee a Form W-2 or Form 1099 for her wages last year. She really needs to file her taxes, so she just reports her income anyway. Because the business never reported her wages, it becomes evident to the IRS that the business also did not report receiving the cash the worker was paid. Then the IRS decides to “interview” a few other workers, to see if there is a pattern of unreported wage, cash sales, etc. Criminal charges can be filed.

 

If any of these examples sounds familiar, then get ahead of the problem. Because these examples happen … a LOT!!

IRS Criminal Investigation and the FBI investigated the case. Criminal charges were filed. Britt is going to prison. In addition to the term of imprisonment, Britt has been ordered to serve three years of supervised release and pay a $10,000 fine and $362,250 in restitution.

If you need tax help contact Tax Law Offices. We can help!