In 2007, the Texas legislature passed a law that made it easier for the state Comptroller to investigate sales tax fraud. The law creates an obligations for several industries to report their monthly sales electronically. This allows the comptroller to compare purchases, sales, and reported paid taxes more efficiently.
If the Comptroller spots an inconsistency then the office conducts an audit. The Comptroller may also initiate an audit if your business has suspect practices such as: the failure to issue sales receipts, failure to ring up purchases on a cash register, failure to report sales taxes collected, or very low prices. If you are to be audited, a CID investigator will enter your business and seize the point of sale receipts, inventory lists, vendor information as well as any other document they want. State law requires you to turn over documents when asked to do so by the Comptroller. The law does not require you to make statements. The Comptroller then audits these records. The audits can go back as far as the Comptroller believes underreporting occurred. Typically the comptroller will only go back four years.
The investigator will not only look for underreporting but other State tax related violations such as: tampering with a government record or making false entries in documents filed with the Texas Comptroller’s Office; intentionally and knowingly committing fraudulent acts by making false entries in the books and records required by law under §151.7102; or Misapplication of fiduciary property under 32.45 of the Texas Penal Code
If the audit reveals evidence of criminal intent to evade paying taxes then the case will be sent to the Criminal Investigation Division and charges may be filed. Further, these cases often attract the intention of federal agencies such as the IRS.
Underreporting of sales tax is considered a felony offense for each month the reporting occurs. These charges can be filed in state court or federal court. The federal offense is Wire Fraud (a violation of 18 U.S.C. 1343).
If the Comptroller determines there was underreporting by the entity and/or owner, the owner can be fined up to 150% of the amount underreported. The Comptroller has the power to repeal the tax id in order to shut the business down. This is in addition to the potential individual criminal implications.
This is a very serious offense and if it is not addressed properly a business owner could lose their livelihood. Paul understands how to navigate the complexities in these cases and address both the State issues and any federal issues that may arise.
If you are being investigated for underreporting of sales tax or any other crime by the Texas Comptroller, call Paul immediately.