One method of increasing profit that’s been practiced since the first books and records have been kept is to keep two sets of books. One set shows the true profit and loss while the other presents a bleaker picture that’s used for tax returns. As long as you’re not caught it works great.
One problem is, of course, what you do when you sell your business? Prospective purchasers like to know what the business really makes. A business with a lower profit will sell for less, so the real books usually get shown. The IRS knows this, and so they do send undercover agents (with hidden tape recorders) to businesses that are for sale.
Take the owner of Club 7 in Fruitland, Idaho, Thomas Dale Overstreet. Mr. Overstreet decided to sell his business. In April, a prospective purchaser spoke with Mr. Overstreet and was allegedly told that the true profit was quite a bit higher than what was on the books. Yes, once again that was an IRS agent. But that wasn’t the only problem for Mr. Overstreet.
I’m sure the IRS then went to look at Mr. Overstreet’s tax records to see what was on his returns. The problem was that there were no returns filed for 2003 – 2010. Oops. Given that Club 7 supposedly made $1 million during this period, that’s a problem. It also appears that much of the profits came from hosting gambling at his club. Casinos aren’t legal in Idaho, so that’s yet another problem.
The IRS undoubtedly continued to investigate. They certainly looked at his bank records, but they apparently didn’t show much. It appears that the reason why is that Mr. Overstreet sent the profits from his business to Mexico, allegedly via money laundering and bulk cash smuggling.
All-in-all Mr. Overstreet has been accused of everything from tax evasion to money laundering, and he’s looking at spending decades at ClubFed if convicted of all the charges. If Mr. Overstreet had kept just one set of books and paid his taxes, its likely he’d still be making money from his illegal activities.