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Cash businesses should beware of underreporting income

| Mar 15, 2021 | Criminal/Civil Tax Litigation |

If you operate a business with significant cash income, the IRS and state taxing authorities are always watching. These businesses offer the illicit opportunity to skim income or launder money, so your accounting practices must be thorough, or you could be charged with tax crimes.

Take, for example, the recent case of a Wisconsin businesswoman. The 65-year-old ran a company called Bullseye, Inc., a business that rented out coin-operated music and entertainment machines to bars. Bullseye provided the machines and split the earnings with bar owners at various rates.

The businesswoman allegedly entered into a scheme with some of the bar owners to skim off some of the cash generated from the machines. This cash was received but not reported to the IRS or the Wisconsin Department of Revenue. As a result, Bullseye evaded corporate income taxes and state sales taxes.

According to the IRS, Bullseye’s tax evasion between 2015 and 2018 amounted to $3,028,930, all told.

At a hearing, the businesswoman explained that she had only gone along with the skimming scheme because her partner (now deceased) had promised to make her majority owner of the company but had later reneged on that agreement. The judge was not sympathetic to this excuse.

Now, the woman and five others have pled guilty to tax crimes. Specifically, the woman pled guilty to conspiring to defraud the IRS and to filing a false corporate income tax return. She was sentenced to a year and a day in prison and a two-year term of supervised release.

She was also fined $75,000 and ordered to pay restitution. She owes the IRS $834,769.65 and another $1,927,852.56 to the state of Wisconsin.

In total, the five conspirators have been ordered to pay a total of $3,807,566 in restitution.

Most cash businesses are legitimate and never fail to pay their taxes. However, there is such a potential for wrongdoing that the businesses are heavily scrutinized. If you run a cash-based business and are contacted by the IRS, be sure to contact an experienced tax attorney to minimize the potential risks.