Orange County Criminal Tax Cases

At RJS LAW tax offices in Irvine in Orange County and San Diego we not only deal with civil tax issues, we help clients who face criminal tax charges and possible jail terms. Criminal tax charges are becoming more common as the California State Board of Equalization cracks down on and investigates tax evasion.
For instance, in the last few years, the owner of software company was arrested for failing to remit sales taxes that his company collected between 2004 and 2011.  The taxpayer had been investigated over the course of several years and was charged with theft when it was discovered that he had forged tax documents and pocketed $1.4 million in taxes.

Triggers for Sales Tax Audits

The following acts are seen as red flags for the Board of Equalization (BOE) to investigate businesses for sales tax evasion:

• A customer reports that the business did not use a cash register to record a purchase and/or did not issue a receipt for the sale
• An employee reports that the business did not report all sales taxes collected
• The business has not registered in a state in which it has a “nexus” (a connection such as a physical location in that state, employees working or soliciting business there, etc.)
• The business advertises at prices far below its competitors for the same and/or comparable products
• The business reports a large number of exempt sales
• The business is consistently late in reporting and paying sales tax
• Schedules or supporting information are missing from the business’ tax returns
• A restaurant’s Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips falls below 8% (IRS trigger)
• The business or its owner was recently audited by the BOE or the IRS and a deficiency was discovered (this is commonly referred to as a “piggy-back” assessment tax audit)

In California, non-compliant businesses have cost the state an estimated $2 billion. In order to collect much-needed state revenue and protect honest businesses from being subjected to a competitive disadvantage, the BOE recently sent out letters to nearly 6,000 California business owners in select zip codes, informing them that they should expect an in-person visit soon from one of numerous Statewide Compliance and Outreach Program (SCOP) teams.

Potential Consequences of Sales Tax Investigations

The results of a Board of Equalization audit reach far beyond the BOE results. It will also most likely trigger an IRS audit as well.  The state may share its findings with the IRS, and a business is likely to find itself facing additional taxes and penalties based on the BOE audit.

Loss of business license.  The biggest issue business owners face if it’s found they owe back taxes is the loss of their business license. Business licenses cannot be obtained or renewed in California if the owner is not up to date with their taxes. There have been cases where a business owner who had not filed or paid sales tax in quite some time was arrested for operating without a license.

Criminal penalties.  Intentionally failing to report and pay sales taxes that you have collected is a misdemeanor, but evasion of $10,000 or more may be charged as a felony.  In all cases, noncompliance with sales tax rules and regulations may subject you to high interest rates on the amount owed, hefty penalties and most importantly, jail time.

The  State Board of Equalization has been very aggressive in its efforts to collect delinquent sales taxes. If you are facing an audit or investigation with the BOE, contact RJS LAW immediately. We have convenient offices in Los Angeles, Irvine and San Diego and deep experience dealing with criminal tax investigations, audits an appeals. Call us today at (619)-595-1655 for a free 30-minute consultation.
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This blog post is not intended as legal advice and should be considered general information only. If you have tax or business related questions or if you have received any types of notices from either the IRS or the California Franchise Tax board, contact the tax professionals at RJS LAW today.
Our team constantly stays updated on the latest tax issues and we can help you sort through your options. We have convenient offices in Los Angeles, Orange County and San Diego and we can help. For a free consultation call us at (619)-595-1655.

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