Under the Table, Over the Limit

Vinh Q. Ho and Thanh Lan Do owned and managed a nationwide nail salon business operating under Anthony Vince Nail Salons, Prive Nail Spas, and Zen Nail & Spas. Prosecutors said the business paid a significant portion of nail technician compensation in cash, omitted that cash from year-end tax forms, trained salon managers to operate the under-the-table payroll, prepared false Forms 1099, and instructed employees to keep the true payroll hidden. 

In this episode, Jason explains how cash payroll becomes criminal tax exposure, why false information reporting is dangerous, how worker classification should be analyzed, and what a business owner should do before a payroll tax issue becomes an IRS-CI investigation. 

Key Takeaways

• Cash compensation still has to be reported.
• A Form 1099 does not make a worker an independent contractor if the actual relationship points the other way.
• False payroll forms can become evidence of concealment.
• Training managers to hide payroll turns a tax problem into a system problem.
• Payroll cleanup should start before IRS-CI is involved.
• Privilege matters when a business owner is trying to understand serious tax exposure.

Case Source 

• DOJ: Owners of Nationwide Nail Salon Business Plead Guilty to Tax Crimes 
• IRS-CI: Owners of nationwide nail salon business plead guilty to tax crimes 

Disclaimer 

This video is for informational and educational purposes only and does not constitute legal or tax advice. Viewing this video does not create an attorney-client relationship between you and The Law Office of Jason Carr, PLLC. The discussion is based on publicly available information and is not a complete analysis of any person’s legal rights, defenses, tax obligations, or case facts. Any commentary about what a taxpayer, business owner, or advisor “should have done” is general educational discussion only and may not apply to your situation. If you have a specific legal or tax question, consult a qualified attorney or tax professional licensed in your jurisdiction.

Comment Policy

Please do not post confidential, sensitive, or personally identifiable tax information in the comments. We do not provide individualized legal or tax advice in the comments or social media replies.

Transcript

SPEAKER_01 0:06

You're listening to Final Notice. Real tax cases exposed with Jason Carr. Each week we break down real Department of Justice tax fraud prosecutions and reveal what should have been done to avoid them. And now here's your host, Jason Carr.

SPEAKER_00 0:28

Over 60 nail salons, more than $116 million in unreported cash payments, and a payroll system prosecutors say was built to keep the real numbers hidden. Today's case is about Van Q Ho and Than Lando. According to the Justice Department, Ho and Doe owned and managed a nationwide nail salon business with more than 60 high-end salons across the United States. The salons operated under Anthony Vince Nail Salons, Preve Nel Salons, and Zinn Nell and Spa's. Ho was described as the de facto CEO. Doe oversaw management of the salons. That matters, because this case is not about one cashier making a mistake at one location. This is a payroll case, and payroll cases become serious when the government believes the business had a system. The salons employed nail technicians. Prosecutors said a significant portion of their compensation was paid in cash. At the end of each year, the business prepared tax forms reporting what each technician had been paid. But according to the DOJ, those forms did not include the cash compensation. So the paper record said one thing, the payroll reality said another. And when the IRS is looking at payroll, those two stories eventually have to meet. According to the DOJ, Ho and Doe trained salon managers to operate the under the table cash payroll, prepared false forms 1099, and instructed employees to keep the true payroll hidden. That phrase is the case. Keep the true payroll hidden. Cash compensation is not automatically illegal. Paying people in cash is not automatically a crime. Plenty of lawful businesses still handle cash. Restaurants, salons, laundromats, convenience stores, contractors, event businesses. The problem begins when cash is treated like it belongs in a separate universe. If cash wages are paid, they have to be tracked. If workers are employees, the wages have to be reported correctly. If workers are truly independent contractors, the reporting still has to match what was actually paid. The cash is not invisible because it skipped the bank for a few hours. The numbers in this case are not small. The DOJ reported that Doe agreed that between 2016 and 2024, the salons paid more than $116 million in cash compensation that was not reported to the IRS, causing an estimated actual tax loss of at least $32 million. Let that number sit for a second. $32 million. That's not a rounding problem. That's not a seasonal bookkeeper falling behind. That is payroll becoming the prosecution theory. Ho and Doe both pleaded guilty to conspiracy to defraud the United States. Ho also pleaded guilty to tax evasion for underreporting income on his 2020 and 2021 individual income tax returns. Ho faces a maximum penalty of 10 years in prison. Doe faces a maximum penalty of five years. So how does a payroll case like this get built? The DOJ's report does not give every investigative detail, but the evidence thing is clear. Payroll, forms, managers, cash, instructions, personal returns. A lot of people think tax fraud cases turn on one dramatic moment: a raid, a confession, a secret recording, a hidden ledger in a shoebox. And it's true, sometimes that does happen. But many payroll cases are more boring than that. And boring is dangerous because boring records are hard to explain away. Payroll cases often come together through patterns. The IRS can compare worker interviews to forms 1099. It can compare reported compensation to business volume. It can look at cash withdrawals, deposit patterns, point of sale records, manager communications, accounting files, year-in forms, and owner distributions. It can ask workers a very simple question: what were you actually paid? And once enough workers answer that question the same way, the paper forms start to look less like mistakes and more like cover. Training managers matter as well because training creates repeatability. Repeatability creates witnesses. Witnesses create consistency, and consistency creates evidence. If a manager at one salon paid cash off the books, the business might say that was local misconduct. If managers across a nationwide operation were trained to do it, that's a different story. That starts to look like a company system. And in tax enforcement, systems matter. Ho's individual tax evasion plea adds another lesson. The DOJ said Ho underreported income on his 2020 and 2021 tax returns. That is common in business tax cases. Once the government starts following unreported cash, it does not stop at payroll. It follows the money into owner compensation, distributions, related entities, personal spending, and personal returns. If the business has a cash problem, the owner's return may become the second act. That's why cash-heavy businesses need boring systems, boring payroll, boring bank deposits, boring forums W 2, boring Forms 1099, boring quarterly filings, boring reconciliation. Boring is beautiful. Creative payroll is how people end up on this podcast. Now let's answer the real question. What would I have told them if they'd walked into my office before this became a criminal case? First, classify the workers correctly. The IRS says facts showing control and independence fall into three main categories: behavioral control, financial control, and the type of relationship between the worker and the business. That means you do not start with the label. You start with the facts. Who controls the schedule? Who controls how the work is done? Who provides tools and supplies? Can the worker make a profit or take a loss? Does the worker serve other clients? Is the work a central part of the business? Is a relationship ongoing? A salon can call a nail technician an independent contractor. It can hand the technician a Form 1099. It can even have the technician sign an agreement. But if the business controls the daily work, the schedule, the customer flow, the workspace, the pricing, and the rules, the label may not carry the day. The IRS says businesses must look at the entire relationship and document the factors used in making the classification decision. Second, report what was actually paid. For employees, Form 941 is used to report federal income, Social Security, and Medicare taxes withheld from employees' paychecks, along with the employer's share of Social Security and Medicare taxes. Employers also use Forms W 2 to report employee wages and withheld taxes, and trade or business payers use information returns such as Form 1099-NEC for certain non-employent compensation. The form has to match reality. A late form can often be fixed. A false form used to hide the true payroll becomes evidence. Third, build a payroll system that cash cannot outrun. If your business receives cash, you need daily closed procedures, you need point of sale records, you need deposit logs, you need cash payout records, you need worker acknowledgments, you need reconciliation between gross receipts, payroll, bank deposits, and tax filings. The owner should be able to ask, how much cash came in yesterday, where did it go? If the answer is a shrug, the system is too weak. If the answer is ask the manager, but do not put it in writing, the system is not weak, it's dangerous. Fourth, if the business has already been doing it wrong, stop the practice before trying to clean it up. No more off book payments, no more incomplete year-in forms, no more manager instructions that make the problem worse, no more group texts explaining how to keep payroll hidden. Then gather the records, quantify the exposure, and evaluate the civil correction path. That path may include amended payroll tax returns, corrected forms W 2 or 1099, amended income tax returns, installment agreements, penalty abatement requests, and for worker classification issues, possibly the IRS Voluntary Classification Settlement Program. The IRS describes VCSP as an optional program that allows eligible taxpayers to voluntarily reclassify workers as employees for future tax periods with partial relief from federal employment taxes for past non-employee treatment. That is a conversation you want to have before IRSCI is involved. Once IRSCI is involved, the conversation changes. And this is where privilege matters. I don't do criminal defense work. My lane is helping taxpayers solve IRS problems and where possible, keep them under the IRS civil tax resolution umbrella. If the facts are serious, you don't want the first full explanation going from the owner to a bookkeeper, from a manager to a preparer, or into an email thread with 10 people copied. Get the facts protected, get the exposure measured, then decide how to fix it. The lesson in this case is simple. Cash is not invisible. If workers are paid in cash, the reporting still has to match reality. If managers are trained to hide payroll, the training becomes evidence. If urine forms leave out compensation, the forms become evidence. And if the owner's personal returns also underreport income, the problem follows the money home. A manicure may last two weeks. A payroll tax problem can last years. I'm Jason Carr, tax attorney. If you want to make sure you never end up on this podcast, you know where to find me. Cartaxlaw.com. Link is in the show notes. This has been Final Notice, Real Tax Cases Exposed.

SPEAKER_01 10:04

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