Restaurant Owners Charged With Tax Fraud

A federal grand jury returned an indictment charging three restaurant owners with conspiracy to defraud the United States and filing false tax returns, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division.

The indictment charges Ayaz Ali Shah, Muhamad Siyab Khan and Khurshed Jehan Badshah with conspiring to defraud the United States by impeding the lawful functions of the Internal Revenue Service (IRS). Shah and Badshah also are each charged with two counts of willfully filing their own false individual income tax returns for tax years 2012 and 2013. Khan is charged with two counts of aiding and assisting in the preparation and presentation of his own false and fraudulent tax returns for tax years 2012 and 2013.

According to the indictment, from 2009 through 2014, Shah, Khan, Badshah, and an unindicted co-conspirator, co-owned and operated a carry-out restaurant “New York Fried Chicken and Pizza”. Shah, Khan, and Badshah each allegedly owned twenty percent of the business while the unindicted co-conspirator owned the other forty percent. The indictment alleges that during this time period, the co-conspirators agreed to underreport the business’s gross receipts, cost of goods sold, and net profit and to report these false amounts on Shah’s 2012 and 2013 individual income tax return, thereby concealing the business’s true partnership nature from the IRS. Khan and Badshah allegedly filed false 2012 and 2013 tax returns that failed to report their gross income.

If convicted, Shah, Khan, and Badshah face a maximum sentence of five years in prison on the conspiracy charge and a maximum sentence of three years in prison on each count of willfully filing a false tax return or aiding and assisting in the preparation and presentation of false and fraudulent tax returns. The defendants also face a period of supervised release, restitution and monetary penalties. 

An indictment merely alleges that crimes have been committed. A defendant is presumed innocent until proven guilty beyond a reasonable doubt.

Principal Deputy Assistant Attorney General Zuckerman commended special agents of IRS Criminal Investigation, FBI, U.S. Immigration and Customs Enforcement's Homeland Security Investigations (HSI) and the Police Department, who conducted the investigations. 

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Qualified Business Income Deduction

Many owners of sole proprietorships, partnerships, trusts and S corporations may deduct 20 percent of their qualified business income. The new deduction -- referred to as the Section 199A deduction or the qualified business income deduction -- is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file next year.

A set of FAQs provides more information on the deduction, income and other limitations.

Temporary 100 percent expensing for certain business assets

Businesses are now able to write off most depreciable business assets in the year the business places them in service. The 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.

Taxpayers can find more information in the proposed regulations.

Fringe benefits

• Entertainment and meals: The new law eliminates the deduction for expenses related to entertainment, amusement or recreation. However, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present and other conditions are met. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
   
• Qualified transportation: The new law disallows deductions for expenses associated with transportation fringe benefits or expenses incurred providing transportation for commuting. There’s an exception when the transportation expenses are necessary for employee safety.
   
• Bicycle commuting reimbursements: Employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. The new tax law also suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.
   
• Qualified moving expenses reimbursements: Reimbursements an employer pays to an employee in 2018 for qualified moving expenses are subject to federal income tax.  Reimbursements incurred in a prior year are not subject to federal income or employment taxes; nor are payments from an employer to a moving company in 2018 for qualified moving services provided to an employee prior to 2018.
   
• Employee achievement award: Special rules allow an employee to exclude certain achievement awards from their wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. The new law clarifies that tangible personal property doesn’t include cash, cash equivalents, gift cards, gift coupons, certain gift certificates, tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities and other similar items.

The tax reform for businesses page has more information on fringe benefit changes.

Estimated Taxes

Individuals, including sole proprietors, partners and S corporation shareholders, may need to pay quarterly installments of estimated tax unless they owe less than $1,000 when they file their tax return or they had no tax liability in the prior year (subject to certain conditions). More information about tax withholding and estimated taxes can be found on the agency’s Pay As You Go page as well as in Publication 505, Tax Withholding and Estimated Tax. Publication 505 has additional details, including worksheets and examples, which can help taxpayers determine whether they should pay estimated taxes. Some affected taxpayers may include those who have dividend or capital gain income, owe alternative minimum tax or have other special situations.

More information

See IRS.gov/taxreform for more information about these and many other tax law changes.

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Businessman Sentenced to Prison for Tax Fraud (He should have hired SELIG & Associates) He Diverted Money from Family Skin Care Business to Pay Personal Expenses (and that ain’t all!)

A businessman who controlled the operation of an anti-aging skincare business in was sentenced to 33 months in prison today following his November 2017 conviction by a federal jury on seven counts of filing false corporate, individual, and private foundation tax returns, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division.

According to court documents and evidence presented at trial, James Wright, 63, ran the day-to-day operations of B&P Company, Inc. (B&P), which manufactured and sold an array of skincare products, including Frownies, a wrinkle reduction product endorsed by celebrities.  Wright’s great-grandmother invented Frownies in 1889 and the product has been sold by his family ever since.  Beginning in the late 1990s, Wright formed a series of entities that he used to divert money from B&P to himself and members of his family.  Instead of receiving a salary from B&P, Wright incorporated a company called The Remnant, Inc., to which B&P paid “management fees.” Wright caused the preparation of false corporate tax returns for The Remnant on which he fraudulently deducted personal expenses, including rent, utilities, and pool and lawn care for his residence.  Wright also used funds from The Remnant’s bank accounts to pay rent for one of his daughters in New York and California.  Wright paid personal expenses directly out of B&P’s bank accounts as well.  He directed employees of B&P to use corporate funds to pay for the rent and utilities at an apartment rented by his mother as well as rent for his daughter in New York.

In 2004, Wright applied to the IRS for non-profit status for a private foundation called Fore Fathers Foundation.  Wright caused B&P to make donations to the foundation and then used more than $170,000 of the foundation’s funds over a seven-year period to pay for high school and college tuition for all five of his children.  According to the testimony at trial, these payments constituted acts of self-dealing that Wright was required to disclose on the foundation’s tax returns and pay excise taxes on.  When Wright filed the foundation’s 2003 through 2009 returns however, he falsely reported that he had not engaged in acts of self-dealing and failed to pay the excise taxes due on the distributions.

The evidence at trial established that Wright had a long history of interactions with the IRS.  In 1998, Wright pleaded guilty to tax evasion for using trusts to conceal income from the IRS.

In addition to the term of imprisonment, U.S. District Judge Walter H. Rice ordered Wright to serve one year of supervised release and pay $146,404 in restitution to the IRS.

Principal Deputy Assistant Attorney General Zuckerman thanked special agents of IRS Criminal Investigation, who conducted the investigation, and Trial Attorneys Melissa S. Siskind and Thomas F. Koelbl of the Tax Division, who prosecuted the case.  Principal Deputy Assistant Attorney General Zuckerman also thanked the U.S. Attorney’s Office for the Southern District for their support during the investigation and prosecution of this case.

SELIG & Associates. Aggressive Tax Advocates We Solve Serious Tax Problems. For a FREE legally privileged consultation with a Federal Tax Practitioner and licensed Attorney call (212) 974-3435