January 28, 2010

Tax Fraud Alleged At D.C. Restaurants

Filed under: Uncategorized — ktetaichinh @ 1:13 am
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Indictment Says Owner Kept $2 Million

By Carol D. Leonnig

Washington Post Staff Writer
Saturday, April 16, 2005; Page B01

Patrons of Tuscana West in downtown Washington, Ristorante Piccolo in Georgetown and three other D.C. restaurants and bars for years paid the required 10 percent sales tax on their bills, but a grand jury yesterday charged their owner with keeping more than $2 million of that tax money for himself.

Gholam H. Kowkabi was indicted on charges of shortchanging the city on money he collected over the past seven years at four restaurants and one nightclub he owned and operated. Prosecutors said he falsified monthly sales tax reports to the city, making it appear as if the establishments did much less business than they had.

Prosecutors accused Kowkabi of concealing 80 cents of every $1 in sales tax that was collected. In some months, prosecutors charge, Kowkabi was reporting total sales that turned out to be even less than the amount of tips his wait staff was collecting.

Kowkabi, 44, of Vienna is the first person to be charged with a felony under a D.C. law passed in 2000. The law makes it a felony for any restaurateur or shop owner to fail to pay more than $10,000 in D.C. sales tax. He could face six to nine years in prison if convicted.

U.S. Attorney Kenneth L. Wainstein and D.C. Deputy Chief Financial Officer Daniel Black touted Kowkabi’s indictment, timed to come on income tax filing day, as proof that D.C. tax cheats will be caught and punished.

“Today’s lesson for crooked restaurateurs is that they could pay a heavy price if they try to pad their profits at the expense of the District’s taxpayers,” Wainstein said.

Kowkabi, appearing in federal court for the first time yesterday afternoon, pleaded not guilty to all 32 counts of fraud and failure to pay District taxes. His attorney, David Schertler, said Kowkabi never tried to hide income from his businesses or avoid taxes.

“Mr. Kowkabi adamantly denies that he has committed any kind of crime,” Schertler said. “These may be technical, unintentional violations. . . . If there were mistakes made, that’s all they were — mistakes.”

Every restaurant, bar and club in the District must make monthly reports to the D.C. Office of Tax and Revenue documenting sales. They are required to pass along the 10 percent that customers pay on their bills as sales tax.

In addition to charging that Kowkabi concealed the sales tax due from Tuscana West on I Street NW and Ristorante Piccolo on 31st Street NW, prosecutors allege that he hid the true sales at the Alamo Grill on 31st Street NW, Sole Restaurant on K Street NW, and a nightclub, Home, on F Street NW.

Kowkabi was the president, majority owner and person with lead responsibility for all five establishments, prosecutors said in court papers. He filed for bankruptcy in 2004 after learning that the District was investigating him for possible tax fraud, prosecutors said.

Black, who oversees the D.C. Office of Tax and Revenue, said the city began investigating Kowkabi in 2003 based on a tip passed along to the D.C. Alcoholic Beverage Regulation Administration. Authorities said they ultimately obtained accurate sales records that Kowkabi maintained in separate logs.

Tuscana West, Piccolo and Alamo Grill are still in business. A receptionist answering the phone listed for Home confirmed that the club remains open but said no one in the office would comment or answer questions. The number listed for Sole was disconnected.

Black said city officials suspect that many more restaurateurs and bar owners are illegally holding back on sales taxes and cheating city residents of government revenue that could be used to fix potholes, repair schools and hire police officers. He called it a “prevalent problem,” while acknowledging that his office has just eight criminal investigators to look into all varieties of tax fraud.

D.C. sales and use taxes generated about $737 million in 2004. The 10 percent tax on restaurant and bar sales generated about $204 million of that amount.

City officials said the Office of Tax and Revenue has investigated 18 cases of withheld sales tax and referred them to the D.C. attorney general for prosecution as criminal misdemeanors. Kowkabi, who is charged with concealing the largest dollar value, is the first person pursued on felony charges.

Andrew J. Kline, general counsel for the Restaurant Association of Metropolitan Washington, disputed the notion that sales tax fraud was common in the city. “In all business, there are people who do what they’re supposed to do, and those who don’t,” Kline said. “We believe the vast majority of our members follow the law.”


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