Illinois Officials Investigating 'Widespread Cheating'

Report alleges "pervasive" underreporting of taxes by state's gas station operators

SPRINGFIELD, Ill. -- More than one-fourth of Illinois gas station operators have underreported the amount of fuel they sell, according to the Chicago Tribune, which said that this allows them to keep millions of dollars in sales tax owed to the state. Within the last 18 months, grand juries have indicted 14 Illinois station operators on charges of illegally withholding a portion of the sales taxes customers paid at the pump, the report said.

The Illinois Department of Revenue has identified 651 operators who have allegedly cheated the state, the newspaper reported.

Officials said they have recouped $54 million in back sales taxes, interest and penalties, most through settlements or after violators came forward under the threat of greater penalties.

Illinois law prohibits the state from disclosing the names of the nonindicted operators, but the numbers reveal that 27% of the state's approximately 2,400 operators had underreported their sales at some point during the last four years, said the Tribune.

Attorney general Lisa Madigan and Department of Revenue director Brian Hamer told the paper that they are not finished investigating the "pervasive" abuse, with Hamer's office set to embark on a third wave of audits.

"I think it's certainly the case that the industry knows that we're on to the widespread cheating," Hamer told the Tribune. "We have noticed in many cases where gas stations have suddenly increased their monthly remittances to the Department of Revenue, in some cases in dramatic fashion."

Of the 14 indicted operators, five have pleaded guilty to tax fraud or failing to keep financial records, said the report. Some also have agreed to testify against two tax preparers, Naveed Ahmed, a CPA, and his brother, Asif Waheed, who are accused of assisting six station operators in attempting to evade $5 million in taxes. Madigan's office is prosecuting these cases.

Madigan is prosecuting Jameel Muzaffar, who leased the Mobil station and was accused of pocketing sales taxes from November 2007 to December 2008. He fled the country a few weeks before his September 2010 arraignment, his attorney, Paul Vanni, told the paper.

The three-year investigation began with tips from distributors who also operated stations and couldn't understand how their rivals were selling fuel so cheaply. As distributors, they would know roughly how much it cost each operator to buy the gasoline.

"There are gas wars where people lower the price to stimulate their business, but this lowering went on for months, years at a time," William Fleischli, executive vice president of the Illinois Petroleum Marketers Association, told the paper. "And [members] also did their own inquiries. I don't know what they did, but they were convinced there was cheating going on."

Madigan's spokesperson, Natalie Bauer, said it would have been physically impossible for the stations' sales records to be truthful. "According to the reports, these gas station operators claimed to have bought all of this gas through a distributor that ultimately they didn't sell," she told the paper. "If that were true, the gas stations would be overflowing with gasoline. It would be flowing down the street."

Hamer said that believes the cheating has been going on for some time, but peaked in 2008 when gasoline prices "went through the roof." Fleischli's theory is that the cheaters used the scam to boost their overall business. Lower prices would drive more traffic into a station's car wash or convenience store. But in "many cases," Hamer said, his auditors found operators stealing taxes on the sale of store items, too.

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