From the Tax Law Offices of David W. Klasing - Facing Sales Tax Fraud Penalties in California? You Could Also Be Facing Criminal Tax Charges!

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Tax Law Offices of David W. Klasing, PC

Nov 26, 2019, 07:42 ET

IRVINE, Calif., Nov. 26, 2019 /PRNewswire/ -- The California Office of Tax Appeals (OTA) recently sided with the CDTFA in an appeal filed by sushi restaurant Little Madfish, upholding 25% and 40% fraud penalties that, together, exceeded $100,000. The OTA, providing a rationale for its decision, pointed in its Factual Findings to numerous indicators of tax fraud justifying the aforementioned penalties, including "many gaps" in the restaurant's sales orders; inadequate tip recordkeeping; and discrepancies between the taxable sales recorded on the restaurants' books, and those that were actually reported to the CDTFA.

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A CDTFA audit revealed "unreported taxable sales and sales that were deleted from the appellant's records." The CDTFA established additional unreported taxable sales of $560,365 for the period from October 2011 through September 2013. As the OTA also noted, "For the period October 1, 2010, through September 30, 2011," – during which time "the appellant did not provide detailed records containing recorded taxable sales" – the CDTFA found "unreported taxable sales of $655,446." Moreover, auditing revealed that the restaurant was not in the practice of reporting mandatory gratuities. However, by using data projections, "the CDTFA calculated audited taxable tips of $93,284."

Ultimately, the CDTFA determined the following: "For the period October 1, 2010, through September 30, 2013, the appellant reported a total of $1,155,873 in taxable sales, and the CDTFA calculated audited taxable sales of $4,498,784, resulting in an understatement of $3,342,911. On average, the appellant reported just 25.69 percent of its taxable sales for the period at issue" – barely a quarter of the true figure.

Though the restaurant later filed for bankruptcy, it still received a sales tax bill "in the amount of $411,419.96 tax, plus applicable interest and penalties." These penalties included "a 25 percent fraud penalty of $56,076.14, and a 40 percent penalty of $57,366.14 for failing to remit sales tax reimbursement collected from customers," for a combined total of over $113,000. Taxpayer's beware – if a taxing authority has enough evidence to assess a fraud penalty, they will also ordinarily have enough evidence to support a criminal tax prosecution.

See the full version of this article HERE.

Public Contact: Dave Klasing Esq. M.S.-Tax CPA, [email protected]

SOURCE Tax Law Offices of David W. Klasing, PC