Robert J. Fedor, Esq., L.L.C.

A cautionary tale for small business owners who deal in cash

Business owners are required to keep accurate financial records and report all earned income to the Internal Revenue Service. This includes income acquired through cash transactions. When business owners fail to keep track of and report income from cash payments, they don't pay taxes on this money which is illegal. If discovered, business owners may face hefty fines and penalties as well as criminal charges related to tax evasion.

A 64-year-old small business owner recently pled guilty to one charge of tax evasion. According to court documents, the man is accused of failing to claim or pay taxes on income earned from cash transactions for the tax years 2006 through 2008.

During these three years, the Internal Revenue Service contends the man earned more than $450,000 in income derived from cash transactions all of which he failed to claim. The IRS learned of the man’s actions from an individual who inquired about purchasing the man’s business.

While the man failed to report the cash to the IRS, he kept records of income earned via cash transactions. Furthermore, he boasted about his actions when listing his business for sale online stating he took home more than "$150,000 in discretionary cash and had the receipts to prove it". When the potential buyer inquired about the claim, the 64-year-old produced journals detailing the cash amounts and transactions.

Upon being arrested and charged with three criminal counts of tax evasion, the man admitted he failed to disclose the cash income to his Ohio tax preparer. The man now faces punishment which includes fines of up to $100,000 and potentially five years in prison.

In this case, the small business owner kept track of cash transactions and appears to have knowingly failed to report or pay taxes on earned income. In many cases, however, such actions may simply be a mistake or oversight. Small business owners facing criminal charges related to tax evasion would be wise to discuss their case with an attorney.

Source: The Las Vegas Sun, "Henderson collision center owner pleads guilty to tax evasion," Jackie Valley, Nov. 18, 2013

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