Three of the most common methods for committing business tax fraud are under-reporting income, over-reporting expenses and not reporting taxes at all. The owners of a Japanese steak house in Duluth, Minnesota chose to under-report their business income. They committed tax fraud by using illegal computer software to erase cash sales from their records. (If the sales never happened, then they don’t owe any tax to Uncle Sam, right?)

A sales suppression device and software, sometimes referred to as a zapper, was used by the steak house owners to erase thousands of line items from receipts. The software deletes part of the cash transactions and creates a second set of books that allows business owners to report smaller sales. This allows business owners to under-report their monthly sales and avoid paying sales tax to the government, while keeping some of the cash for themselves. (It’s really just another way to carry out a skimming scheme.)

During 2015 and 2016, the owners filed at least 15 false state tax returns over the same number of months. (Apparently investigators determined that there was evidence that the use of the suppression device actually dated back 35 months.)

 The restaurant and its two owners, who are in their late 30’s, pleaded guilty to 17 felony charges of tax fraud. The company and the owners were jointly ordered to pay back restitution of $251,666 to the Department of Revenue and $41,094 to the city of Duluth, Minnesota.

The owners were also granted a Stay of Imposition, which is better than a stay of execution. (Basically, they pleaded guilty to a felony, but if they successfully complete a year of unsupervised probation, their conviction will be reduced to a misdemeanor.) Another person charged in the case will also see her felony conviction dropped if she stays out of trouble over the next year.

When businesses fail to report their fair share of tax revenue, the tax burden becomes heavier on taxpayers and residents in the area where the revenue is not reported. When patrons pay sales tax at a restaurant such as today’s Japanese steak house, they expect the business owners to remit the sales tax to the government on their behalf.

Congratulations to the State of Minnesota for convicting these criminals. (This case was the first of its kind in the state.) The successful prosecution of this case serves as a warning to others who are using sales suppression software to get out of paying taxes. (If you dare to skim cash sales, you will be zapped!)

Today’s “Fraud of the Day” is based on an article entitled, Duluth restaurant guilty of tax fraud,” published by Duluth News Tribune on May 1, 2018.

A Duluth restaurant and its owners have pleaded guilty to tax fraud and will be required to pay nearly $300,000 in uncollected sales taxes.

Authorities said Osaka Sushi Hibachi Steak House used illegal computer software to erase cash sales from its records, removing thousands of line items from receipts in order to under-report monthly sales.

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Larry Benson, Senior Director of Strategic Alliances, LexisNexis Risk Solutions - Government

Larry Benson is responsible for developing strategic partnerships and solutions for the government vertical. His expertise focuses on how government programs are defrauded by criminal groups, and the approaches necessary to prevent them from succeeding.

Mr. Benson has 30 years of experience in sales and business development. Before joining LexisNexis® Risk Solutions, he spent 12 years founding and managing two software technology startups. During the 1990s he spent 10 years as a Regional Director helping to grow a New England-based technology company from 300 employees to 7,000. He started his career with Martin Marietta Aerospace working on laser guided weapons and day/night vision systems.

A sought-after speaker and accomplished writer, Mr. Benson is the principal author of “Fraud of the Day,” a website dedicated to educating government officials about how criminals are defrauding government programs. He has co-authored WTF? Where’s the Fraud? How to Unmask and Stop Identity Fraud’s Drain on Our Government, and Data Personified, How Fraud is Changing the Meaning of Identity.

Benson holds a Bachelor of Science in Physics from Albright College, and earned two graduate degrees – a Master of Business Administration from Florida Institute of Technology, and a Master of Science in Engineering from Lehigh University.