hospitality industry legal issue ( law )

IRS- FRAUDULENT 1Daniel Vu HFHM 278 Research Paper IRS-Fraudulent What is IRS and how people committed in tax fraud IRS is Internal Revenue Service and is a bureau of the Department of the Treasury, one of the world’s most efficient tax administrators. The mission of IRS is to collect the tax money from the tax payer, meet their tax responsibility and enforce the law with integrity and fairness to all. Also, the IRS has a duty to investigate and report any tax payer who try to commit fraudulent. Fraudulent, with a shorter name ‘fraud’, is the willful attempt to evade tax law or defraud the IRS. Tax fraud could have been done by individual or company by doing any of the following: intentionally fails to file an income tax return, willfully fails to pay taxes due, false claim or false file return, etc based on the article ‘Income Tax: Fraud vs. Negligence’ by FindLaw’s team of legal writers and editors. Who would be mostly to commit the income tax fraud? Service workers and cash based service owner are the ones who commit the fraud most of time because they are getting paid by cash and easily to underreport cash tips or income that they bring home. The Findlaw mentions that “Restaurant and clothing storeowners, car dealers, salespeople, doctors, lawyers, accountants, and hairdressers were ranked as the top offenders in a government study of income tax fraud. Service workers, such as restaurant servers, mechanics, and handymen, also commonly underreport cash income”. Penalties for Income Tax fraud

IRS- FRAUDULENT 2It’s criminal and civil penalties that a tax payer that willingly attempts to evade or defeat paying tax. The type of fraud and how much money would determine how the penalties gonna be. There are lots of penalties that tax payer have to commit to when they are guilty to tax fraud. The penalties could be charging for lots of money, going to jail or both depending on how serious the situation is. 26 USC 7201- Attempt to evade or defeat paying taxes. The tax payer subject to other penalties allowed by law and in addition to (1) imprisonment no more than 5 years, (2) a fine of no more than $250000 for individuals and $500000 for cooperation or (3) both of the penalties plus the cost of prosecution when the person is guilty upon conviction. 26 USC 7206- Fraud and false statements. The one who is guilty upon conviction will face the penalties of (1) no more than 3 years imprisonment, (2) a fine of no more than $250000 for individuals and $500000 for corporation, or (3) both penalties and the cost of prosecution. 26 USC 7203- Willful failure to file a return, supply information, or pay tax at the time or times required by law. The possible punishments for this fraud could be

(1) no more than 1 years of imprisonment,

(2) a fine of less than $100000 for individuals and $200000 for corporation,

(3) both penalties with the cost of prosecution. This fraud will include the failure to pay estimated and final tax, failure to make a return, keep records or supply information. 26 USC 7207- Fraudulent returns, statements, or other documents. Any person who willingly to deliver or disclosure to the Secretary return, account, statement or other document that he knows that its fraudulent or false to any materials will be (1) sentence of imprisonment of no more than 1 year, (2) shall be fined of $10000 for individual and $50000 in the case of corporation, or (3) both.

IRS- FRAUDULENT 3There are lots of more Internal Revenue Code that people could be sentenced to jail or fine with thousands of dollars when they are committed fraudulent crimes. In addition to most of the case when frauds were committed, the IRS haven’t figured it out right away but pulling back to years ago to investigate. Anyone who is trying to commit fraud don’t know that the IRS will get their hands in tax of the payers years after and most likely they could figure out the wrong numbers and by then the fine is so much more than what the payer could gain from tax fraud. Tax Fraud Cases Texas Restaurant Owners Convicted of Tax Fraud by underreported gross receipts and deducted personal expenses, the article is found in News of The United States Department of Justice and was published on Friday, May 24, 2019. The Texas couple, Micheal Herman and his wife, Cynthia Herman were convicted of conspiracy and tax charges by a federal jury in Austin for defraud the United State by impeding the Internal Revenue Service and of filling false individual income tax returns for tax years 2010 and 2011, also Micheal was convicted of filing false 2010 through 2012 corporation income tax returns. The Hermans owned and operated three establishments: Cindy’s Gone Hog wild, a restaurant and bar in Travis County, Texas and two restaurants in Bastrop County, Texas, Cindy’s Downtown and Hasler Brothers Steakhouse. The Hermans committed the fraud crime by depositing only a portion of the restaurant’s cash receipts into their business bank accounts, kept approximately $570000 in cash receipts and only reported those deposits on the corporate and individuals income tax returns. As mention in the article, the Hermans also ‘paid for personal expenses out of the business accounts, including repair of their personal swimming pool, utilities for their home, and the salary of a household employee’. The Herman could face a five years in prison as well as three years for each of the false tax return

IRS- FRAUDULENT 4charges. It’s clearly that the Hermans violated the 26 USC 7206 and 7203 for their tax years. Even though the false filing was in 2010 and 2011 but 7 years later, they still got caught for their false act. The IRS should have made them to pay back for the tax different that they own on top of the penalties that they should receive. Massachusetts Restaurant Owners Charged With Tax Fraud was published in The United States Department of Justice on Wednesday, April 3, 2019. The Massachusetts federal grand jury in Boston charged Ayaz Ali Shah of Dedham, Muhamad Siyab Khan and Khurshed Jehan Badshah of Dorchester, all three residents of Massachusetts with conspiring to defraud the United States by impeding the lawful function of the IRS. Shah, Khan, Badshah and an indicted co-own a carry out restaurant “New York Fried Chicken and Pizza” in Dorchester, Massachusetts. The three committed to the crime by agreed to under report the business’s gross receipts, cost of goods sold, and net profit. Shah fail to report these amounts to his 2012 and 2013 individual income tax return. Khan and Badshah false to file their gross income in 2012 and 2013 tax return. If convicted, 5 years in prison is what Shah, Khan and Badshah could face plus 3 years for each of the false tax return filing. Also the defendants face a period of supervised release, restitution and monetary penalties. 26 USC 7207 could be the code that the court could use to determine this case since all of the defendants false to file tax return and intentionally underreport the income and gross sale. In the article ‘Lake View restaurant owner pleads gutty to tax fraud’ published on September 28, 2019, Sun-Times Wire mentions that Sandra Sanchez, 45 years old, admitted to using a ‘tax zapper’ at Cesar’s Killer Margaritas. Sanchez from Morton Grove, admitted to using sales suppression software call “tax zapper” at her NorthSide restaurant to underreport more than

IRS- FRAUDULENT 5$1 million in sales and to defraud the state out of more than $100000 in taxes at Cesar’s Killer Margaritas, 3166 N. Clark St. between 2012 and 2015. The software “tax zapper” was banned in 2013 for automatically delete records of cash sales transactions and reconciles the date so that reported sales match reported income. Sanchez is a first conviction in Illinois for using technology to fraud the tax. She was sentence to two years in prison and one year of supervise after from the day she got released. It seems like she has violated the 26 USC 7201 for trying not to pay tax or defeat the paying taxes to the IRS. As Illinois Attorney General Kwame Raoul said that “ Using technology will not prevent you from getting caught, and it certainly will not protect you from being held accountable”. This statement is true because IRS has so many different ways to figure out the fraud when they see the uncommon number on someone tax file, especially the restaurant industry. Everyone knows that restaurants do have most of the cash transactions comparing to every other types of business and industries. And for those software that was banned, the IRS tends to have their eyes still on the software and whoever try to use those website will catch the IRS’s attention when they attempt to defraud the government. The U.S. IRS is one of the strongest and biggest tax bureau in the world and it’s not that they don’t know what people are doing, they haven’t get to those fraud just yet. Mankato’s shogun Sushi accused of sales tax fraud by Mark Fischenich, was published on August 17,2019, is another example of how restaurants try to defraud the IRS for their tax. Shogun Mankato Inc., the company that owns Shogun Sushi and Hibachi in Mankato Heights Plaza at the corner of Madison Avenue and Highway 22 is facing 33 felony counts of filling false tax returns. The charges is based on the lengthy audit and investigation that began in July, 2016 covering a 37 month period starting October 2013, discovered the unusual low percentage of

IRS- FRAUDULENT 6cash sales comparing to credit card sales. It was found that eight out of twelve observation buys were altered to ‘cancel’ and changed the paid amount to $0.00. From October 2013 to October 2016, there have been 49,652 transactions deleted during 37 month period which mean over $2 million in taxable sales were not reported using the average ticket price to do the calculation. The Mankato restaurant was required to submit sales reports and pay taxes monthly and 33 of those reports were false and underpaid by a combined of $202,687. Jian Chen, 34 and Fang Chen, 32 were known as the manager of Shogun restaurant for a few months in 2016 and they still got charged for fraudulent with two counts of knowing aiding in preparation of tax returns. They each have passcodes to access the restaurants points of sale and the investigation shows that they have canceled 1400 to 1600 transactions in March, April, May and June of 2016. Xu Bing Wang, 40, an owner of Shogun Burnville was charged in January with 4 counts of failure to pay $43,000 in sales tax also faced charged individually mirror the charges against Chens in Mankato. “4Big Ways Businesses Get Caught” According to the article ‘Gladys Knight’s Son: A Lesson in Sales Tax Fraud’, written by Harry Galstian, he brought out 4 of the big ways the State and the IRS could be using to figure out who try to defraud them. Galstian opened up the article with the story about Georgia’s Department of Revenue reported Gladys Knight’s Signature Chicken & Waffles restaurant, Knight’s son, Shanga Hankerson was accused of stealing $650000 by withholding sales taxes owned to the state. Questionable tax filling, reporting from an outside source, an audit and tax prepares with a number of large returns are the 4 big way Galstian wants to warn business about trying to file false tax return or try to defraud the IRS.

IRS- FRAUDULENT 7Questionable tax filling. If the IRS or the state notice that your tax return numbers are not match with what they are suppose to, the IRS will start their investigation. They will go through every single numbers, both business and personal account to see if the person file everything correctly. Also by doing this the IRS could also check the cash flow of the business to see if the owner underreport the cash sales or not. They will match the cash sales and credit card sales to make sure they are balance or not. Reporting from an outside source. Every time there is an evasion in sales tax, customers or employee could use a toll free number that is available to each state to report especially those business who ask for no tax price in cash. Those cash only restaurants tend to underreport their sale in other to pay less tax and with that they can keep the cash and file their income as less than they actual earn. “Asian” restaurants are most likely to take cash only because they don’t want to pay a lot of tax and pay to the credit card provider so they could keep all of the profits that they make. An Audit. Those establishes that have large number of cash transaction may be audited because there are always issue with their tax file. The reason to audit them is to encourage the underreport tax avoidance and prevent people who try to defraud the tax return. Tax preparers with a number of large returns. Some tax preparers try to file less about of income or underreport tax in order to get more than return for their clients and sometimes the amounts are not as much but put the business of the clients as risk for failing to file tax return. The IRS don’t take any explain as they only look at the numbers that suppose to be right. Conclusion

IRS- FRAUDULENT 8It’s really easy to file false tax return and get more money back or pay less for tax sales, but its also not hard for the IRS to figure out when they see the tax file is not right. There are so many ways IRS could use to catch the fraudsters. Fraudulent is a crime and everyone should be responsible for their tax file. The money the person could save for committed fraud is not worth comparing to the money that the person has to pay as a penalties and the times that they will be put in jail. Those restaurants who defraud the IRS are the shame to the industry and they shouldn’t be opened again when they get