Plaintiff filed suit against a trust established by debtor for the benefit of his children to recover debtor's loan deficiency. The Defendant Trustees claimed that the trust was irrevocable and thus in...sulated from claims against the debtor/donor. Counsel for the Plaintiff argued that the pattern and practice by which the debtor/donor accessed trust assets demonstrated that the trust was a fiction. The Trust sought to have the Plaintiff's claims dismissed at summary judgment but was denied.
Tax fraud and tax evasion
Cotank, LLC v. Commissioner of Revenue
Sep 17, 2021
OUTCOME: All Assessments were abated
Appellant, a small pizza shop, appealed the Commissioner of Revenue’s refusal to abate a meals tax assessment. Following its audit of the pizza shop, the Commissioner issued Notices of Assessment for ...additional meals tax for the periods from January 1, 2013 through December 31, 2015 in the amount of $190,184.02 against Cotank, and for additional personal income tax against the individual owners of the LLC, each in the amount of $80,748.00 exclusive of interest and penalties. The Commissioner also concluded that the Appellants had intentionally suppressed sales from its Point of Sale (POS) system in order to avoid paying meals tax, charged them with civil fraud, and sought a double assessment pursuant to G.L. c. 62C, § 28. The Commissioner arrived at this conclusion by reviewing Cotank’s sales reports for an eight-month period, identifying what it termed “skips” in the data which it interpreted as sales deletions, and recalculating sales for the entire three-year audit period based upon its assumptions.
The Appellants disputed the Commissioner’s finding, contending that the audit was deficient, and that the auditor’s reasoning was not supported by the evidence. Specifically, the pizza shop began operations in 2010. It was soon shuttered in October 2010 due to a fire and resumed operations in July, 2011. Business was initially quite slow, but the Appellants gradually grew their business by working long hours and by utilizing online ordering. The Appellants argued that the “skips” identified in the data sample were not deleted sales, but were rather remnants of order modifications made due to customer requests, the Appellants’ language barriers, and “fake” and mistaken orders. The Appellants testified that they would simply “void” an altered or mistaken order rather than employ their POS system’s edit function to correct the entry. This practice produced the “skips” that Commissioner alleged were deleted sales. For the Commissioner’s findings to be accurate, the pizza shop's sales would have had to be over twice those reported, and would have been well in excess of sales of other nearby pizza shops. During the hearing, the Appellants established that their post-audit sales were significantly below those assessed by the Commissioner for the audit period.
The Appellants’ tax and sales suppression expert concluded that there was no evidence that the Appellants had employed an electronic sales suppression device (commonly known as a “zapper”), and that a comparison of their reported sales and post-audit sales supported the accuracy of the Appellants’ reported amounts.
After 13 days of hearing before the Department of Revenue’s Appellate Tax Board, the Board found in favor of the Appellants and abated all taxes assessed against each of the Appellants.
