Just three short years ago, an operator of two laundromats pleaded guilty to tax evasion. The taxpayer, who was responsible for the daily activities of the laundromats, including maintaining, collecting, and reporting the receipts of customer sales, failed to report all cash receipts received by the laundromats. He then used the cash for personal expenses. The crime carries a penalty of up to five years’ incarceration plus a $250,000 fine.

Business owners are required to report income from all sources, not just monies received from washers and dryers. The taxpayer should also consider income earned from detergent and fabric softener sales, snack and soda machines, arcade games, and other coin operated services provided by the laundromat. A taxpayer’s method of determining incomewill likely be found inadequate if:

• Records were either not maintained or not available for review.
• Cash T indicates a cash shortage with no explanation from the taxpayer.
• Taxpayer’s business ratios vary from industry averages with no explanation from the taxpayer.
• Actual business operations indicate more income than what was reported.
• Reported receipts cannot be tied to the books because they were not deposited or cannot otherwise be verified.
• Overestimation of operating costs.

Owners and operators of laundromats should always carefully maintain accurate records and report all income from any source. If the taxpayer suspects that any income went unreported, 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.