In December of 2013, a New Jersey native admitted to tax evasion with respect to income earned at a casino he owns in Trinidad. The tax evasion count to which the taxpayer pleaded guilty carries a potential penalty of five years in prison and a $250,000 fine, which amounts to twice the gain or loss arising out of the evasion. This incident serves as a reminder that even income earned outside of the United States can be taxable income. The casino owner’s plea also highlights the seriousness of failure to report income earned from coin operated machines.
In situations in which the machine is leased, the owner of the amusements or the owner of the space, whoever makes the payments, must report the lease payments on Form 1099-MISC if the payments total at least $600. However, if the arrangement is a joint venture, the partners must file a Form 1065 and provide each partner with the information necessary to report the partner’s share of the taxable income. Auditors will inspect deposit slips on the date the income is collected from the machines to determine if sufficient cash income is deposited. Additionally, the IRS will examine whether the taxpayer is taking deductions which are not allowable for such equipment, such as “qualified technological equipment” and “information systems property.”
Owners of coin operated amusements and other cash intensive businesses should always carefully maintain accurate records and report all income from any source. Persons with income earned outside of the US should also be aware of their tax liability. 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.