Tony Luke’s, founded in 1992 in South Philadelphia, has been enormously popular with foodies and tourists, especially for its cheesesteaks and roast pork with broccoli rabe sandwiches. Over the years, the restaurant and its owners have been featured on various television shows and Tony Luke’s has locations now in New York City, New Jersey, Maryland and Washington, D.C.
Shockingly, though, Tony Luke’s may be soon be more appropriately considered “notorious,” rather than famous. On July 24, 2020, the United States Department of Justice (U.S. Department of Justice) announced that a federal grand jury in Philadelphia returned an indictment alleging that two owners of renowned Philadelphia cheesesteak restaurant, Tony Luke, conspired to defraud the IRS, committed tax evasion, and aided and assisted in filing false tax returns.¹ More specifically, according to U.S. Attorney William M. McSwain, “[t]he defendants are charged with conspiring to defraud the United States, 19 counts of aiding and assisting in the filing of false personal and corporate tax returns, and four counts of tax evasion.”²
First, the U.S. Department of Justice clarified that the indictment claims that from 2006 to 2016, Tony Luke’s owners and operators, Anthony Lucidonio Sr., and his son, Nicholas Lucidonio (Defendants) “allegedly hid from the IRS more than $8 million in receipts by depositing only a portion of Tony Luke’s receipts into business bank accounts and filing with the IRS false business and personal tax returns that substantially understated their income.”³
The U.S. Department of Justice further noted that the indictment alleges employment tax fraud—and the indictment indicates this was a more sophisticated scheme than the average “pay under the table” workaround. Significantly, the indictment states that Defendants paid numerous employees in cash “off-the-books” (without accounting for withholding and payroll taxes) and paid some wages “on the books” for a fraction of hours worked. Taking the scheme one step further, the indictment alleges that Defendants “directed that their employees endorse their paychecks and give them back to the defendants and their store managers, which defendants then redeposited into company bank accounts.”⁴ The U.S. Department of Justice adds that “[f]rom 2014 through 2015, [Defendants] also allegedly filed false quarterly employment tax returns with the IRS substantially understating wages paid and taxes due.”⁵
Moreover, the indictment alleges that following a franchising rights dispute between the Defendants and another unnamed individual in 2015, the Defendants were concerned that their tax fraud scheme would be exposed. As such, Defendants allegedly amended prior-year tax returns to reflect increased reported sales; however, Defendants then allegedly “falsely offset the increased income by inflating expenses.”⁶
Remember, an indictment only alleges criminal actions—Defendant are presumed innocent until proven guilty; however, if convicted, Defendants face:
a maximum sentence of five years in prison for the conspiracy charge and each count of tax evasion, and three years in prison for each false return charge. Each defendant also faces a maximum period of five years of supervised release, a $6,000,000 fine, and a $2,400 special assessment.⁷”
We encourage our readers to note IRS Criminal Investigations Special Agent in Charge Thomas Fattorusso’s warning to taxpayers, that “[c]ollecting and paying over employment tax is an obligation, not a choice” and that “[Defendants] willfully chose to ignore this obligation. Their actions not only caused a loss to the government, but it also put their employees at risk of losing future Social Security and Medicare benefits.”⁸