How They Stash the Cash by Mark Kohn

Author:Mark Kohn
Language: eng
Format: epub
Publisher: Sourced Media
Published: 2012-02-25T00:00:00+00:00

11

The Eatery Owner

Henry owned a large eatery, which sold beer in a prominent and separate section of the restaurant. Beer sales were a major contributor to the business. Henry reported approximately $50,000 of annual income from the business, but his family’s lifestyle reflected a larger income. Henry and his wife, Alice, drove expensive cars; their children attended private schools; and Henry was buying a lot of real estate.

Because there were only a few beer distributors in the city at that time, the case was not difficult to solve. Records of all of the local beer distributors were subpoenaed, detailing quantities and types of beer (kegs, bottles, etc.) sold to the eatery during the prior two years. A visit to the eatery and bar provided the prices of the beer by type (Bud, Miller, regular, light, etc.) and size (8 oz., 12 oz., etc.). The amount of beer purchased per the subpoenaed records of the beer distributor was then priced out. For example, if 1,000 cases of Miller Light (12 oz.) were purchased each year, and each case held 24 bottles, and that item would sell in the eatery for $2.00, then the sales for that item would amount to $48,000 per year. After pricing out each item of the purchased beer, I calculated the expected total sales for the year. There was a lag to consider, since the beer suppliers provided sales records for prior years, while my prices reflected the current year. To adjust for that, I reduced the current sales price by a reasonable amount to more closely represent the sales price in the past year. I then compared the calculated total sales of beer with what was reported on the books; not surprisingly, I found that the reported sales were approximately $500,000 lower than the calculated amount. These unreported sales were presented as hidden income in a report to the court.

The burden of proof then moved from the outspouse (my client) to the inspouse (the business operator). In other words, when the case began, the business operator claimed he had low income. The burden of proof was on his spouse to prove otherwise. When the spouse provided a report concluding that there was unreported income based on subpoenaed records and actual pricing, the burden then moved from the outspouse back to the business operator.

No research was done to try to uncover unreported food sales, because it was deemed to be very difficult in that particular business, and Alice could not afford to pay for extensive forensic accounting. Nevertheless, Alice’s lawyer attempted to convince the court that the massive underreporting of beer sales reasonably suggested an equal type of underreporting of income from the food sales. The court went halfway—it fully accepted the report documenting the underreporting of beer sales but did not allow any estimates as to underreporting of food sales.

Applying this scenario to a restaurant, if we assume that the restaurant sells 20 different types and sizes of beer, and we subpoena the beer distributors and

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.