Welcome to Spodek Law Group. Our goal is to give you the reality of federal tax investigations targeting restaurant owners - not the sanitized version your accountant presents, not the legal fiction you see on television, but the actual truth about what happens when the IRS Criminal Investigation division decides your restaurant is worth prosecuting.
The investigation into your restaurant started before you knew about it. That's the first thing you need to understand. By the time IRS-CI agents show up at your door - or worse, your accountant calls you panicking about subpoenas - they've typically been building your case for 12 to 24 months. They already know what you made. They've already calculated how much you underreported. They've already computed the "tax loss" figure that will determine whether you spend a year in federal prison or five years. The 90% conviction rate for IRS criminal cases isn't because federal prosecutors are especially talented at trial. It's because they only bring cases they've already won on paper.
This is the reality that restaurant owners across America are discovering right now. In September 2024, John Drivas - owner of three restaurants in Massachusetts and New Hampshire - was sentenced to a year and a day in federal prison plus over two million dollars in restitution. His crime was paying employees partly in cash and not reporting those wages. That same month, Richard Bhoolai, who ran fast food restaurants in Cincinnati, was convicted on eight counts of willful failure to pay employment taxes. He had withheld money from his employees' paychecks but never sent it to the IRS. In November 2025, a father and sons in Lancaster County were sentenced for running a tax fraud scheme through their restaurant - the Neptune Diner - owing over $600,000 in restitution.
These arent unusual cases. There typical. The IRS Criminal Investigation division specifically targets cash-intensive businesses because restaurants represent everything they want in a prosecution target. High volume cash transactions mean large "tax loss" numbers that look impressive in press releases. Third-party data from credit card processors and vendors creates irrefutable paper trails. And the pattern of conduct over multiple years provides clear evidence of "willfulness" - the key element that separates a civil tax dispute from federal prison.
The Investigation Started Before You Knew
Heres the thing most restaurant owners dont understand until its too late. A federal tax investigation doesnt start with agents knocking on your door. It starts with algorithms. It starts with data matching. It starts with your credit card processor filing a 1099-K that shows every single card transaction you processed last year - and that number not matching what you reported on your tax return.
The IRS has been collecting third-party data on your restaurant for years. Your credit card processor reports your card sales. Your food and beverage vendors report what they sold you. Your bank files Currency Transaction Reports for cash deposits over $10,000 and Suspicious Activity Reports when your deposit patterns look unusual. Your POS system - the one you bought to help run your business more efficiently - creates a perfect forensic record of exactly how much you should have reported.
When these numbers dont match your tax returns, the discrepancy triggers what the IRS calls "income probes." According to the IRS examiner manual, agents are required to analyze your "cash penetration percentage" - the ratio of your cash receipts to your credit card receipts. If your ratio is significantly different from industry benchmarks, that's a red flag. If your reported income is substantially less then what third-party data shows you actually received, that's not just a red flag. That's a criminal referral.
The criminal investigation can run parallel to any civil audit you might be aware of. The IRS Internal Revenue Manual explicitly allows this. So while you think your dealing with a routine audit, the civil examiner might be gathering evidence for the Criminal Investigation division. By the time you recieve actual notice of criminal investigation, they've already interviewed your vendors. Theyve already subpoenaed your bank records. Theyve already built there case.
How the IRS Already Knows What You Made
Stop. Think about every electronic transaction that touches your restaurant.
Credit card sales. Every swipe gets reported to the IRS on Form 1099-K. Your processor has no loyalty to you. They file that report automatically.
Food costs. Your suppliers - Sysco, US Foods, your local distributors - they all file 1099s reporting what they sold you. And heres were it gets mathematical: if you bought $400,000 worth of food and your industry has a standard food cost percentage of 30%, the IRS knows you should have had roughly $1.3 million in sales. If you reported $900,000, theres a $400,000 discrepancy that needs explaining.
Payroll. If your reported to paying 15 employees but your Workers Comp insurance covers 25 people, thats a discrepancy. If your unemployment tax filings show different numbers then your income tax returns, thats a discrepancy. Discrepancies trigger investigations.
Bank deposits. The Bank Secrecy Act requires financial institutions to report cash deposits over $10,000. But it also requires them to report patterns of deposits that appear designed to avoid that threshold. Depositing $9,500 multiple times instead of larger amounts is called "structuring" - and structuring is itself a federal crime, seperate from whatever tax issues you might have.
The IRS doesn't need to catch you in the act. They dont need a whistleblower. They dont need to be lucky. They have data. Massive amounts of data. And algorithms that compare your reported income to what that data says you actualy made.
Why "I Didn't Mean To" Won't Save You
This is were restaurant owners make there most dangerous mistake. They think because they didnt have criminal intent - because they werent trying to defraud anyone - that they cant be convicted of a crime. Wrong.
"Willfulness" under federal tax law doesnt mean you specifically intended to evade taxes. It means you voluntarily and intentionally violated a known legal duty. And the way prosecutors prove willfulness is through pattern. If you underreported income once, maybe that's a mistake. If you underreported income for three years, four years, five years - that's not a mistake. That's a pattern. The pattern IS the evidence of willfulness.
OK so let me be specificaly clear about what prosecutors look for. The IRS has a list of what they call "badges of fraud" - specific behaviors that prove willful intent:
Multiple bank accounts with no legitimate business purpose. Cash payments to employees off the books. Maintaining two sets of records. Destroying or concealing records. Making false statements to IRS agents. Failure to cooperate with the investigation.
If you've done any of these things - and many restaurant owners have done several without thinking of them as criminal - prosecutors will argue that your conduct demonstrates willfulness. Its not about what was in your head. Its about what you DID.
Todd Spodek has seen this pattern in hundreds of cases. Restaurant owners who genuinely believed they were just being practical - paying some staff in cash because it was easier, not reporting all their tips because "everyone does it," depositing cash in amounts that wouldnt trigger reporting requirements because their accountant suggested it. None of that matters to a federal prosecutor. What matters is the pattern of conduct over time.
The People Who Will Testify Against You
Heres were it gets worse. Much worse.
The accountant you trusted to keep you safe? They might become the government's star witness. Accountant-client privilege is extremly limited in criminal tax cases. Communications about tax ADVICE might be protected. Communications about the preparation of tax returns - basicly everything your accountant actually did for you - are not protected. If your accountant was involved in preparing returns that underreported income, they have every incentive to cooperate with prosecutors to save themselves.
Your bookkeeper? Same problem. No privilege at all. Everything they saw, everything they recorded, everything they know about how cash moved through your business - prosecutors can compel them to testify.
Your employees? Consider Richard Bhoolai's case in Cincinnati. He withheld taxes from his employees' paychecks but never sent that money to the IRS. Those employees became his accusers. They testified that taxes were withheld from their pay. They had pay stubs proving it. He had no defense.
If you paid any employees in cash - if you gave them their "regular" paycheck plus some extra cash - those employees become witnesses. They can testify about what they received. They can testify about what you said when you handed them cash. They can testify about what they observed in how you handled the register, the deposits, the books.
Family members who work in the business? They can be charged as co-conspirators. The Lancaster County case involved a father and his sons. Prosecutors will sweep up everyone involved to create pressure, to generate cooperating witnesses, to build the kind of comprehensive case that makes the 90% conviction rate possible.
The circle of prosecution expands outward from you to everyone who touched the money.
What "Tax Loss" Means For Your Sentence
Most restaurant owners have no idea how federal sentencing actualy works. They think a judge looks at the case, considers the circumstances, and picks a number that seems fair. Thats not how it works. Not even close.
Federal sentencing isnt arbitrary. Its calculated. The United States Sentencing Guidelines use a formula, and the primary input to that formula is something called the "tax loss" - the total amount of tax the government says you should have paid but didnt.
Heres how it works. The IRS calculates your underreported gross income - the difference between what third-party data shows you made and what you actually reported. Then they apply a tax rate. For individuals, they typically use 28%. For corporations, 34%. That percentage of your underreported income becomes your "tax loss."
Your tax loss determines your "base offense level" on the sentencing guidelines. Higher tax loss means higher offense level. Higher offense level means longer prison sentence.
Tax loss under $6,500: Level 6 (0-6 months)
Tax loss $30,000-$80,000: Level 14 (15-21 months)
Tax loss $200,000-$400,000: Level 20 (33-41 months)
Tax loss over $1,500,000: Level 28 (78-97 months)
But wait. It compounds. If you used "sophisticated means" - multiple accounts, false documents, concealment techniques - that's a 2-level enhancement. If you obstructed justice by lying to agents or destroying records - another enhancement. If you abused a position of trust - enhancement. If there were multiple victims (like unpaid employment taxes affecting many employees) - enhancement.
John Drivas, the restaurant owner from Massachusetts, had a federal tax loss of $439,341 plus state tax losses of over $1.5 million. He received a year and a day in prison. That "and a day" matters - it makes him eligible for good time credit that pure year sentences don't allow. His sentence reflects what happens when you cooperate, when you plead guilty, when you accept responsability.
What happens when you dont cooperate? When you fight? The average sentence in IRS criminal cases is 37 months. Over three years in federal prison. And federal prison means serving at least 85% of your sentence. There's no parole in the federal system.
The 48 Hours After Agents Show Up
Scenario. Its a Tuesday morning. Your at the restaurant doing prep work. Two people in suits walk in, show badges, identify themselves as IRS Criminal Investigation Special Agents. They want to talk about your business.
Stop.
Do not answer questions. Do not explain. Do not try to be helpfull. Anything you say will become evidence. Even casual statements like "oh, that must be a mistake" can be twisted. Even your body language and demeanor will be noted in their reports.
Take their business cards. Note their names and badge numbers. Say: "I need to speak with my attorney before answering any questions." Say nothing else. Call a lawyer immediatley.
Within hours of that contact, several things can happen simultaniously:
Asset freeze. If prosecutors believe you might move money or sell property, they can get an emergency restraining order freezing your accounts. You might not be able to make payroll. You might not be able to pay vendors. You might not be able to operate.
Grand jury subpoenas. Subpoenas can go out to your bank, your processor, your vendors, your accountant - everyone whose records might be relevant. These people are legally required to comply.
Search warrants. In some cases, agents will arrive with warrants to seize records, computers, and documents from your restaurant and your home. Imagine customers watching as federal agents carry boxes out of your establishment. Imagine your staff being questioned. Imagine the local news showing up because scanner traffic mentioned "IRS raid" at a local business.
Employee interviews. Agents may visit your employees at their homes. They might show up when you're not around, asking questions about cash handling procedures, about what they observed, about conversations they overheard. Your employees are not required to tell you about these visits. Many wont.
The government has unlimited resources and unlimited time. They've had months or years to prepare. You have hours to respond. That asymmetry defines everything that follows.
As Todd Spodek explains to clients in this situation: the next 48 hours determine the next several years of your life. What you say, what you do, who you contact, how you respond - all of it matters enormously.
What Happens If You Ignore This
Some restaurant owners, when they first learn about an investigation, make the catastrophic decision to pretend it isn't happening. They dont respond to inquiries. They dont hire a lawyer. They assume it will somehow resolve itself.
It wont.
The investigation continues whether you participate or not. The difference is that without legal representation, you have no one advocating for your interests. No one reviewing what the government has. No one identifying weaknesses in their case. No one negotiating on your behalf.
The IRS-CI conviction rate is 90%. But within that 90%, there is massive variation in outcomes. Some defendants receive probation. Others receive decades. The difference often comes down to early intervention, skilled representation, and strategic decision-making in those critical early stages.
Ignoring the problem doesn't make the evidence disappear. It just means you face the evidence without preparation, without strategy, without any opportunity to mitigate the damage.
Worse. Ignoring the investigation can itself become evidence against you. Failure to cooperate, failure to respond, failure to engage - prosecutors characterize these as "consciousness of guilt." Your silence gets interpreted as acknowledgment that you have something to hide.
The window for effective intervention shrinks every day. Decisions that could have been made early become unavailible. Options that existed close. Leverage disappears. By the time you finaly engage, your facing a much harder situation than you needed to face.
What We Actually Do For Restaurant Owners
At Spodek Law Group, we've handled federal tax cases involving restaurant owners, cash businesses, employment tax issues, and the full range of IRS Criminal Investigation matters. We understand both the legal complexity and the human reality of these cases.
The first thing we do is assess exactly where you stand. What does the government actually have? What third-party data have they collected? What witnesses might they call? What is your realistic exposure?
Then we develop strategy. In some cases, early intervention before indictment can make an enormous difference - potentially convincing prosecutors not to bring charges, or to bring lesser charges. In cases where charges are inevitable, we prepare for trial while simultaniously exploring plea options that minimize your sentence and protect what can be protected.
We deal with the reality of your situation, not legal fantasy. Federal tax cases are serious. The consequences are severe. But outcomes vary dramaticaly based on the quality of representation and the strategic decisions made early in the process.
Every case is different. The restaurant owner who comes to us before indictment has different options then the one who comes after. The owner who has been truthful with us about their situation can be defended more effectivley then one who hasnt. The owner who acts quickly preserves options that delay destroys.
What we dont do: make promises we cant keep. Tell you what you want to hear instead of what you need to know. Pretend the situation is better or worse then it actualy is. You need accurate information to make good decisions. We provide that information, even when its uncomfortable.
If your facing a federal investigation - if agents have contacted you, if you've received a target letter, if your accountant called about subpoenas - the window for effective intervention is narrow. The decisions you make in the next few days and weeks will shape everything that follows.
The government had years to build their case. You have a limited window to respond. Use it.
Call Spodek Law Group at 212-300-5196. The consultation is confidential. The stakes are your business, your freedom, your family's future. This is not something to handle alone.
