Charles and Mary Bangle bought a controlling interest in Manco & Manco Pizza, which had previously been known as Mack & Manco. The chain consists of three stores on the boardwalk in Ocean City and a location in Somers Point. Charles ran day-to-day operations, and Mary handled the cash and payroll. Charles failed to report $263,113 in income, avoid- ing more than $91,000 in taxes. He also admitted making cash deposits of less than $10,000 to avoid federal reporting requirements. Mary admitted that she lied when she told IRS agents that she deposited just enough of the cash receipts to meet payroll and other expenses when she was actually using undeposited cash for personal expenses. She also lied about the amount of money she deposited into her personal bank account. Charles was ordered to pay restitution of $248,560, serve a fifteen-month prison term and also pay a $5,000 fine. Mary was sentenced to three years of probation and fined $3,000.

Case Study Questions

1. Do you believe their CPA may have known about this fraud? If so, give your reasons. If not, what might have tipped him off?

2. Do you believe the punishment by the court was adequate? Was the sentence too light? Or not severe enough? Why do you feel this way?

3. Describe the specific tax preparer penalties, including the Code sections, that might have been imposed by the IRS.