There have been bars in Wisconsin accused of running video poker machines without licenses. They take payments and make payouts under the table, and they report the income as sales of drinks and other products they sell. The receipts they have for the purchase of their alcohol provide evidence to support that, for example, they could not have sold $100K in alcohol because they only bought $1K of it.
We’ve also had a lot of threads about businesses people suspect of money laundering. I’m at work and kinda busy right now, or I’d be tempted to pull a search on them.
I guess maybe money laundering wasn’t the best term to use? Hypothetically yes we were going to possiblyou purchase a place. Happens to be a place that my brother has been going for years and then one thing leads to another and he is closed friends with a few of the bartenders and so he knows this place and it’s clientele better than most. I do not think I need to mention that the payroll consists of like 2 people when there is actually about 8 or so working who collect their pay in cash, however, after further interest etc etc and seeing the tax returns I am beyond skeptical as is my brother. The numbers are beyond BS. The deductions are almost all of the income and the cash being paid out to the employees is obviously something I think could and would cause problems especially if an audit were to happen. Curious curious and more curious Hypothetically here … and again if it isn’t money laundering… why and on what basis would a tavern want to inflate their gross sales by an obscene amount (meaning the place doesn’t ring more than $40k-$50k so why over inflate so much?
Wait, the place is for sale? Then the gross sales figures are just bullshit. Every retail operation like that for sale will have ridiculously inflated sales figures, and deflated expenses.
They would inflate the gross sales because many people negotiate a sales price based on their gross sales. Different industries use different multiples, but a common rule of thumb is that you buy a service-based business for the same dollar amount as a year’s worth of their sales. Even if the price is based on something else, a buyer always prefers to take over a profitable business.
Well then how could they have filed a tax return with all those inflated numbers ? (Hence is why first thing that came to my mind was money laundering …) because the business and sales are not there, not by a Longshot…
Well, I only know Colorado but your number seem way off from what we do here. The feds charge $13.50/ proof gallon and Colorado charges $0.6026/ proof liter and most bars buy the booze by the liter for their well booze is as opposed to the 750ml that most people buy. So well booze tax here would be $2.83 for the feds and $0.48 for the state those excise taxes are included to the purchase price for the bars. Skol vodka and rum is currently selling the major accounts for $7/liter. So taxes are about 3.31 of that 7. There are 33.8 oz per liter so at perfect 1.5 oz pours you actually get 22 pours per bottle so I was being conservative. I’m not sure how a bar could function with the costs you’re talking about
On a more personal level my distillery sells our well rum for $12/750 ml to our major account and we are on the absolute top of the well market in Colorado and are advertised as a premium well.
Even with our premium rum that costs $28/750 ml bars are charging $6/shot and they get 16 shots per bottle so they are doing $96/$28 spent but that is not what they do volume in.
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As a rule in selling businesses small cash businesses like bars and convenience stores that are owner-operator non-franchise operations hide as much cash as possible while operating so their tax return history should show very little income. When they go to sell they will have a difference balance sheet that is often just s much BS for potential buyers.
People who are not intimately familiar with the way operations like this are run (and you and your brother are obviously not familiar) have no way of knowing what the real numbers are. Bars are irresistible candy to many people who have romantic notions about what is, at root, a tedious and difficult way to make a living and many, if run honestly, would not be worth operating as the net cash flow after taxes would not be worthwhile. It is also unlikely you will be able to finance the purchase as banks are not stupid enough to take their half assed financial statements at face value.
You and you brother need to find another place to put your money this is not good investment for beginners.
Here’s a common scam, I saw it being used. A tavern owner wanting to sell his place would take the nightly receipts, pay himself after deducting what he needed to cover expenses, then take what he had paid himself and bought drinks with it. He wasn’t actually buying any drinks, he was just ringing a bunch of drinks into the cash register and putting the money back in again. No expenditures, no real income, but the daily gross was inflated, and it looked like he was making a lot of money from the business.
Snitch. 
I’m in North Carolina, which likely has much less public pressure than Colorado to keep booze cheap. A bit of Googling (I’m no longer in the bar business, so don’t have access to a better source) finds that NC’s $12.30 per gallon retail excise tax is one of the highest in the nation. There’s an additional $3.75 per bottle tax applied for service at a bar.
That being said, a fifth (your standard size bottle at a bar in my neck of the woods. Perhaps you mountain folk prefer larger bottles?) is much less than a liter: there’s only about 25oz in a fifth.
Most importantly, I’m fascinated by how relatively cheap liquor is for bars outside of my home state. They must either be a license to print money or people just don’t go out as much.
You write down a bunch of numbers. You sign it. You mail it to the IRS. It’s illegal to file a fraudulent return, but the IRS mostly cares about people under reporting income.
Heck, they have at least three years to amend it, so they can always sell the business then “discover all those missing receipts” so that it won’t even cost them any money in taxes in the long term.
I’m curious about the “no food” thing. Generally speaking, a bar must at least offer to serve food (i.e.: have a food menu, even if it’s only one item and so outrageously expensive that nobody would want to order it) to be legal. Maybe this is different wherever the OP’s brother is.
This requirement varies wildly and depends on the location, often down to the local jurisdiction. Some places require that at least 50% of the establishment’s sales come from food, some allow straight up bars that don’t even serve complimentary peanuts or pretzels.
Or possibly, just skip that last step, and show the piece of paper with the made-up numbers on it to your potential buyers (while sending a different, more honest, return in to the IRS).