At this point, our readers should be aware that there are certain industries that are more subject to examinations like restaurants and retail industries, especially if cash intensive and low controls in place.

You can see numerous tax evasion schemes related to restaurants in the news,  United States Attorney’s Office of each State and the IRS website. We just listed some examples below:

  • Underreporting transactions not depositing cash in business bank account – Mr. Calkap did not report some of the cash transactions, paying himself and to some employees in cash and provided fraudulent books to his accountant to prepare the tax returns.
  • Deleting transactions from the Point of Sale system – Mr. Chen had a especial software to delete cash transactions from his restaurants, reducing the sales (gross receipts) which also impacted on the Sales tax at the State level. Additionally, there was fraud on employment taxes. The total amount of fraud was over $2 million dollars.
  • Paying employees partly by payroll checks and partly in cash, plus not paying sales tax even after collecting $1.5 million – Mr. Drivas did not report all the payments to the employees to the IRS (not paying employment taxes). Additionally, the collected Sales tax from customers but did not pay those sales tax to the authorities.
  • Commingling funds and depositing business sales in personal accounts in increments of less than $10,000 – Mr. Bangle deposited sales in his personal bank account and structure those deposits to avoid reporting requirements to FinCen. Note that the business even change name after this scandal in the South Jersey shore, from Mack & Manco to Manco & Manco.

If you have a restaurant, please, ensure that you are addressing all these items mentioned above in this post and potentially additional ones, even if related to Labor laws (i.e. employment agreement, workers compensation insurance, etc.). If you are going to show up in the news, better be for the James Beard award, pizza reviews from influencers like Dave Portnoy or any other positive recognitions.

 

Impacto Media article – Mr. Calkap (October 2024) – Former owner of Philadelphia restaurant charged with tax crimes

IRS – Mr. Chen case (Jan 2023) – Restaurant owner sentenced to prison for 2 million dollar tax fraud scheme

US Attorney’s Office – Massachusetts  – Mr. Drivas case (Sept 2024) – Owner of Three North Shore Restaurants Pleads Guilty to Tax Fraud Schemes

US Attorney’s Office – NJ – Mr. Bangle (Feb 2017)  – Owners Of Popular Ocean City, New Jersey, Pizza Restaurants Sentenced On Tax Evasion, Structuring And Making False Statements