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The Spodek Law Group understands how delicate high-profile cases can be, and has a strong track record of getting positive outcomes. Our lawyers service a clientele that is nationwide. With offices in both LA and NYC, and cases all across the country - Spodek Law Group is a top tier law firm.

Todd Spodek is a second generation attorney with immense experience. He has many years of experience handling 100’s of tough and hard to win trials. He’s been featured on major news outlets, such as New York Post, Newsweek, Fox 5 New York, South China Morning Post, Insider.com, and many others.

In 2022, Netflix released a series about one of Todd’s clients: Anna Delvey/Anna Sorokin.

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The reason is simple: clients want white glove service, and lawyers who can win. Every single client who works with the Spodek Law Group is aware that the attorney they hire could drastically change the outcome of their case. Hiring the Spodek Law Group means you’re taking your future seriously. Our lawyers handle cases nationwide, ranging from NYC to LA. Our philosophy is fair and simple: our nyc criminal lawyers only take on clients who we know will benefit from our services.

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Cash Business Tax Audit Lawyers

By Spodek Law Group | January 22, 2023
(Last Updated On: March 12, 2023)

How You Can Endure a Tax Audit When You Operate a Cash Intensive Business
A wide range of businesses and commercial enterprises operate on a cash basis because of the customers or simply because of the nature of the business. For example, clients may pay independent contractor cash for work performed at their home. Customers at a gas station, liquor store, convenience store or other business generally also pay in cash. Some businesses, such as salvage yards, check cashing places, pawn shops, jewelry stores, parking garages, and restaurants also frequently have significant cash receipts.
For owners of businesses of this type, this means that the agent or examiner may enter an audit of such a business with the expectation of finding wrongdoing. This higher level of suspicion and more intensive audit techniques that are used often result in major problems for the business owner.  These may include a tax audit that goes overboard and results in an examination by sampling or other statistical methods. In plain English, audits of cash intensive companies often result in significant tax liabilities and penalties, as well as a heightened potential for criminal tax exposure. Thus, they should only be handled by a seasoned tax professional.
The IRS and other tax bodies recognize that the lack of a documentation surrounding cash transactions leaves room for greater latitude for abuse than credit card payments and other transactions that create an electronic paper trail. Principally, the main concern held by tax agencies and other regulators is the propensity for misappropriation by the proprietor and other persons who handle cash or who are in charge of the business finances. Misappropriation in a cash intensive enterprise can occur in a few different ways ranging from low-tech skimming of cash receipts before they get recorded to high-tech fraud done with “zappers” – electronic devices that can alter sales records. Other misappropriation methods can include the theft of cash from the cash register and the theft of goods. Proprietors may also make payments for goods never received to alleged vendors who turn out to be relatives or aliases. Such practices reduce taxable revenues and deprive the state and federal government of tax revenue they might otherwise receive. Tax enforcement agencies go after and prosecute fraudulent criminal behaviors of this type vigorously.
How Do Auditors Identify Potential Tax Fraud in Cash Intensive Businesses?
In addition to other audit and examination techniques IRS, FTB, and BOE agents also utilize what are known as badges of fraud to spot situations where there is an elevated likelihood of tax evasion or other forms of misappropriation. Badges of fraud usually include the behaviors of the audited cash basis business owner. For example, any behavior that is combative or hostile towards the auditor counts as a badge of fraud. Likewise, refusal to provide requested or required information to an auditor could also be construed as a badge of fraud. Some badges of fraud are:

  • The failure to maintain proper records
  • The destruction of financial records or other documents
  • Concealing any assets
  • Excessive cash transactions
  • Maintaining a second set of books
  • Structuring transactions uniquely for tax purposes
  • Giving unreasonable or implausible explanations or financials

Other indicators of fraud the IRS references in its Cash Intensive Businesses Audit Techniques Guide include a lavish lifestyle that could never be sustained on the reported amounts of income, businesses that carry on operating in spite of stated losses in multiple consecutive years, an increase in cash balances despite reported losses, and unusually low sales for a business of this kind.
The discovery of any badges of fraud places taxpayers in an extremely compromised position. The consequences of their presence as the taxpayer enters a federal civil tax audit can include the possibility of a civil fraud penalty of 75% of the additional tax owed plus interest. If the matter gets referred for criminal investigation, the possibility for a five year prison sentence and up to $500,000 in fines exists.
What You Should  Expect from an IRS Audit of a Cash Intensive Business
An auditor’s investigation into you and your business actually begins long before the actual examination of your books and records. Agents engage in a thorough, intensive pre-audit work-up process.
From here, the IRS agent will conduct an interview. A proper interview may take longer than two hours during which all of your statements, appearance, body language, and conduct will be thoroughly scrutinized. Every taxpayer is expected to be capable of explaining every step in the businesses standard operations from the funds that are entering the business as income, through their deposit to their disbursement. Discrepancies in what you may state or imply during the interview compared to the information contained in your records can give rise to grounds that will support a more thorough and intense audit.
What You Should Do When Your Cash Intensive Business is Looking At an IRS Tax Audit
Should your business ever get selected for an audit by the IRS or a state tax enforcement agency (especially a sales tax audit by the BOE), Enlisting the services of an experienced tax attorney is a critical stage during which your business, avoid a worst-case scenario and mitigate the consequences of the audit. Our lawyers understand the taxpayer’s bill or rights and we will not hesitate to remind the auditing agent of your rights in an assertive but professional manner. When you have an experienced tax lawyer taking care of your case, the audit work-up process begins immediately. The lawyer can look your records over, give you an educated assessment of your the situation, and get ready to tackle potential issues that may arise. Moreover, the attorney is more likely to reach out to the auditor to negotiate and set the ground rules for the audit. By laying down ground rules, the process can be under control to a degree. Should the auditor discover errors or inadequate information, you will know what you can expect from the process. In fact, exercising some degree of control over the audit techniques, the attorney could negotiate strategically to protect your business from weak points in the records.
If you operate a cash intensive business, like a restaurant, salvage yard, check cashing business, jewelry store, pawn shop, or parking garage and are in peril of an IRS Tax Audit, contact our experienced tax lawyers right away!

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I was searching for a law firm with some power to help me deal with a warrant in New York . After 6 days I decided to go with Spodek Law Group. It helped that This law firm is well respected by not only the top law firms in New York , but the DA , Judge as well. I...

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