As a result of examinations of various businesses or market
segments by IRS district offices, the IRS has developed a
specialized auditing approach for approximately 80 industries
known as the Market Segment Specialization Program (MSSP). The
program is designed to develop the expertise of agents in
auditing specific types of business or market segment.
As part of the MSSP approach, the IRS has also issued Market
Segment Guidelines which have been developed by the IRS in
consultation with industry representatives, that address
recurring tax issues, to a particular industry.
The industries or market segments upon which the IRS has focused
under the MSSP includes, to name a few, bail bondsmen, casino
gambling, car washing and detailing, ministers, attorneys,
plastic surgeons, and laundromats!
The MSSP focuses on industries that can receive a substantial
amount of their income in cash, as well as industries that may
not be fully paying employment taxes for their workers (more on
this subject next month).
In addition to the audit activity undertaken in the MSSP, the IRS
also monitors cash businesses through the vehicle of the Currency
Transaction Report (CTR). The Bank Secrecy Act requires
financial institutions to report currency transactions of more
than $10,000.00 to the Internal Revenue Service. Although the
law was initially established to principally aid federal
authorities in their effort to control the flow of currency
generated from illegal activities such as narcotics, CRTs have
also proven to be helpful in catching taxpayers seeking to evade
taxes regarding cash transactions.
A CTR must be prepared by your bank for any currency transaction
of more than $10,000.00 or, for that matter, for multiple
currency transactions totalling more than $10,000.00 in any one
day.
It is a violation of federal law to arrange a transaction with a
financial institution specifically to avoid the CTR requirement.
An illustration of such a violation would be the act of breaking
a single deposit of more than $10,000.00 in cash into a series of
small cash deposits or reducing the amount of the deposit to less
than $10,000.00 when told of reporting requirements by the
financial institution.
An exemption from large currency transaction reporting can be
provided by a financial institution under certain circumstances.
The effect of the exemption is to raise the dollar amount which
can be involved in the currency transaction before the reporting
requirement kicks in. Financial institutions will consider
raising the dollar amount of the currency transaction reporting
requirement for retail businesses primarily engaged in providing
goods directly to consumers, amusement parks, bars and
restaurants, hotels, theaters, and vending machine companies.
Banks can, however, lower the dollar amount of such currency
transaction reporting requirements without notification to the
bank customer, particularly if normal cash deposits drop to a
lower level.
In a news release issued by the U.S. Attorneys Office in San
Diego, earlier this year, Wayne McEwan, Chief of the IRS Criminal
Investigation Division, stated "that the IRS will vigorously
prosecute businessmen who succumb to the temptation of skimming
cash receipts." This comment was made in connection with the
agreement of a San Diego route operator to plead guilty to
charges of tax evasion. The defendant entering the plea was the
president and sole owner of a San Diego based Sub Chapter-S
corporation operating over 10,000 coin operated washers and
dryers installed in, among other locations, "apartment buildings,
condominium complexes and college dormitories, throughout San
Diego County."
After collection of the gross receipts, monies from the various
machines were deposited directly at Wells Fargo Bank. According
to the news release, "Rather than receive a credit for the amount
of the entire deposit, [the defendant] directed Wells Fargo Bank
to return exactly $7,000.00 in cash from each of the first five
deposits his company made each month." Although this $35,000.00
would be reflected as "less cash" on bank deposit slips, the
amount would not appear on monthly bank statements. As a result,
the defendant received approximately $420,000.00 each year for a
period of years from Wells Fargo Bank that was not indicated on
his bank statements. The news release further states that the
corporate return would only reflect "the amount of income
appearing on the Wells Fargo Bank statements. In other words, he
failed to declare all of the cash he received back form the
individual deposits. As a result, he evaded the payment of
$1,432,622.00 in taxes which would have flowed through to his
personal returns."
According to the prosecutor in this matter, Assistant U.S.
Attorney Phillip L.B. Halbern, the defendant paid the government
$5,100,335.12 in back taxes, penalties and interest, together
with a $100,000.00 criminal fine. In addition, the defendant was
sentenced on or about April 24, 1995 to a two year term in
prison.
Skimming is a dangerous game which can have devastating economic
and emotional consequences for you! A failure to report all your
cash receipts may result in a visit to your laundromat by a
fellow in a business suit with an attache case. And he won't be
coming to see you to do his laundry!
