In December of 2013, a car wash owner pleaded guilty to tax fraud for failing to report nearly $500,000 in wages. Sentencing guidelines call for a ten to sixteen month prison sentence. Car washes are another cash intensive business that the IRS lists in its audit technique guide as a business at risk for tax evasion.

IRS auditors will want more than just gross receipts. The volume of customers who pay cash for car washes makes it easy for taxpayers to skim cash off the top of gross earnings for the day and deposit a lesser amount to the company’s bank account. Auditors will want to compare the gross earning receipts to daily sales summary sheets, data from car counters installed in the bays, and data from vending machines used in self-serve washes. A comparison of the number of car washes reported and the amount of soap, water, wax, etc. consumed is another auditing technique commonly used by the IRS.

Owners of cash intensive business should always carefully maintain accurate records and report all income from any source. If any income was not reported, the taxpayer should consider filing amended returns before the IRS initiates contact. Because filing an amended return can have serious consequences, the taxpayer should first consult a tax attorney. Even where the IRS has initiated contact, the taxpayer should seek the help of a tax attorney.

Attorney Stephen J. Pieklik of the Pittsburgh tax law firm Williams Coulson regularly defends clients at audit before the IRS. Additionally, he regularly represents clients before the IRS’s Appeals Division and at United States Tax Court.