Yearly Archives: 2020

Two of the owners of the landmark Philadelphia cheesesteak spot Tony Luke's have been charged with carrying out an $8 million tax dodging scheme that involved false reports to government authorities and under-the-table payments to employees, federal prosecutors announced Friday.

According to DoJ, Owners of Philadelphia Cheesesteak Restaurant Indicted for Tax Evasion Allegedly Concealed $8 Million in Sales and Paid Employees “Off the Books” A federal grand jury in Philadelphia returned an indictment that was unsealed on July 24, 2020, charging the owners of a popular cheesesteak restaurant with conspiracy to defraud the IRS, tax evasion, and aiding and assisting in filing false tax returns. 

According to the indictment, Anthony Lucidonio Sr., and his son, Nicholas Lucidonio, both of New Jersey, owned and operated Tony Luke, a cheesesteak and sandwich restaurant located in South Philadelphia. From 2006 through 2016, the Lucidonios allegedly hid from the IRS more than $8 million in receipts by depositing only a portion of Tony Luke’s receipts into business bank accounts and filing with the IRS false business and personal tax returns that substantially understated their income. 

The indictment further alleges that the Lucidonios committed employment tax fraud by paying employees a portion of their wages and salaries “on the books” for some hours they worked, but then paying substantial additional wages for the remaining hours worked “off the books” in cash, without withholding and paying to the IRS the required employment taxes. From 2014 through 2015, they also allegedly filed false quarterly employment tax returns with the IRS substantially understating wages paid and taxes due. 

It is also alleged that after a dispute over franchising rights arose between the Lucidonios and another individual in 2015, the Lucidonios, concerned that their tax fraud scheme would be revealed, amended prior year tax returns to increase reported sales, but then falsely offset the increased income by inflating expenses. 

If convicted, the defendants face a maximum sentence of five (5) years in prison for the conspiracy charge and each count of tax evasion (50 yrs), and three years  (3) in prison for each false return charge (30 yrs). Defendants also face a period of supervised release, restitution, and monetary penalties. 

An indictment merely alleges that crimes have been committed. The defendants are presumed innocent until proven guilty beyond a reasonable doubt. 

 

 

According to Law360, The U.S. Treasury Department finalized Monday a partial tax exemption for companies that have already paid high foreign taxes on global income, and will allow businesses to apply the exemption retroactively to the end of 2017.

The U.S. Treasury Department finalized rules Monday that will allow companies to choose to apply the global intangible low-taxed income high-tax exclusion to taxable years back to Dec. 31, 2017. 

Under the exemption, the 10.5% tax on global intangible low-taxed income, part of the 2017 Tax Cuts and Jobs Act , won't apply to foreign income that has already been taxed by other jurisdictions at rates of 18.9% or more.

Treasury proposed the expanded exclusion in June 2019. The final rules let companies choose to apply the GILTI high-tax exclusion to the taxable years of foreign affiliates that begin after Dec. 31, 2017, and before July 23, 2020, when the regulations will be published in the Federal Register.

Lawmakers initially said GILTI would act as a corporate minimum tax, ensuring that companies do not pay excessively low taxes on income from intangible assets, such as intellectual property. The conference report that both chambers of Congress passed alongside the TCJA said that the GILTI tax wouldn't apply on income already taxed at 13.125% or higher, as businesses can use foreign tax credits to cover 80% of the foreign tax imposed.

Despite those nonbinding statements, Treasury ultimately found that foreign tax credit limitations can apply, creating much higher GILTI payments for some companies.

By applying the exception retroactively, the rule may help companies dealing with the economic fallout of the novel coronavirus pandemic. The GILTI system does not allow companies to carry losses forward, which practitioners say can be unduly harsh for unprofitable companies. If they can use the exception, companies can remove subsidiaries from GILTI calculations entirely, potentially allowing for more flexibility in managing economic losses.

Aside from the final rule on the high-tax exclusion, issued under Internal Revenue Code Section 951A , Treasury on Monday also issued guidance under IRC Section 954 . The measure is part of Subpart F, the longstanding regime that immediately taxes the global passive income of controlled foreign corporations, or CFCs. In order to use the GILTI high-tax exception, a company must elect to use both Section 951A and Section 954.

The proposed regulations apply based on a company's effective foreign tax rate for the aggregate of CFC income attributable to a single qualified business unit, or QBU. For the final rules, Treasury rejected comments requesting the rate apply on a CFC-by-CFC basis, noting that doing so "would inappropriately allow the blending of high-taxed and low-taxed income."

Such blending "is inconsistent with the purpose of Section 951A, which is to limit potential base erosion incentives created by a participation exemption regime," Treasury said.

The regime, under the TCJA's IRC Section 245A , generally allows companies to bring home foreign-sourced income by claiming a 100% dividends-received deduction, provided the earnings don't fall under Subpart F or GILTI.

While the final rules don't apply on a CFC-by-CFC basis, they replace the QBU-by-QBU approach with "a more targeted" way for identifying relevant foreign earnings, according to Treasury.

 

 

 

These scams are commonly called OIC “mills,” which cast a wide net for taxpayers, charge them pricey fees and churn out applications for a program they’re unlikely to qualify for. 

Although the OIC program helps thousands of taxpayers each year reduce their tax debt, not everyone qualifies for an OIC. In Fiscal Year 2019, there were 54,000 OICs submitted to the IRS. The agency accepted 18,000 of them resulting in a rejection rate of 67%.

Individual taxpayers can use the free online Offer in Compromise Pre-Qualifier tool to see if they qualify. The simple tool allows taxpayers to confirm eligibility and provides an estimated offer amount. Taxpayers can apply for an OIC without third-party representation; but the IRS reminds taxpayers that if they need help, they should be cautious about whom they hire.

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