A recent Internal Revenue Service and the N.Y. State Tax Bureau investigation to net tax dodgers has hit New York’s Korean community particularly hard. According to members of the Korean business world, in the past enforcement of penalties for tax evaders around tax-filing time (February-April) was a less strict. This year, the investigations and penalties seem unusually severe.
Korean accountants working in public service companies report that in the last three months tax authorities have stepped up their scrutiny of reported sales tax, income tax, and state tax; these sources say that the number of cases of tax evasion among Korean small businesses has gone up between 20 to 30 percent, compared to previous years. Businesses are getting fines of $100,000 to $1,000,000. Korean business owners, who are already suffering under the current long-term economic downturn, are now staggering under the weight of such penalties and look to an uncertain future.
The tax investigations are concentrated on Manhattan, Queens, and Long Island, with particular focus on businesses such as salad bars, grocers, restaurants, nail salons, and beauty supply shops. Investigators are examining not only small businesses but are scrutinizing all types of businesses, old and new, big and small.
Business owners report that the audits are much more intense and rigorous than in previous years. For example, investigators are reviewing tax reports along with documents that go back many years to unearth past tax evasion. A major difference this year is that businesses that were audited as recently as two years ago are being audited again, something that was not done in the past. Apparently, things have changed.
Mr. Kim, owner of a beauty supply company and who recently sold his business, was fined $500,000 for tax evasion because past filings of his annual income did not support the reported sale of his business.
Mr. Lee, the owner of a Manhattan salad bar that was audited two years ago, is being audited again this year. “Last year I paid a $100,000 penalty, but this year I’m being audited again. I can’t believe it,” said Lee. “Is anybody in the IRS thinking about how hard this is for business owners given the state of the economy?”
Analysts say the IRS made public announcements that it would step up enforcement of penalties against tax evaders across the board.
“The government has been aggressively investigating and penalizing tax evaders, so we advise all business owners to take extra care in the preparation of their tax returns. The extent and severity of the investigations and penalties seem to be increasing. Right now, I have a lot of business,” said Kang, Song-hwa, a Korean accountant.
