On July 24, the U.S. Department of Justice announced the unsealing of an indictment that charged the owners of an “iconic” and popular South Philadelphia cheesesteak restaurant, Tony Luke’s, with conspiracy to defraud the IRS, tax evasion, and aiding and assisting in filing false tax returns. From 2006 through 2016, Anthony Lucidonio Sr., and his son, Nicholas Lucidonio, allegedly hid from the Internal Revenue Service (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.”
According to the indictment, the Lucidonios allegedly also committed employment tax fraud, by paying employees a portion of their wages and salaries “on the books” for some hours that they worked, but then paying substantial additional wages for the remaining hours that employees worked “off the books” in cash, without withholding and paying to the IRS the required employment taxes. From 2014 through 2015, the Lucidonios “also allegedly filed false quarterly employment tax returns with the IRS substantially understating wages paid and taxes due.”
In addition, “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.” The Philadelphia Inquirer reported that the unnamed other individual was “Tony Luke Jr., the prominent face of the brand,” who “was fired from the family business in 2015 in a dispute over franchising rights and royalties from the Tony Luke’s brand.”
Note: On its face, this case appears to be a relatively simple example of alleged tax fraud and tax evasion by two individuals in a business that is largely cash-based. But corporate compliance officers should take note of it as an example of how any type of noncompliance in any business, if not promptly identified and addressed, can spiral into even more severe and extensive noncompliance – with correspondingly severe consequences.