A recent case out of Bahrain offers a sobering lesson for small business owners everywhere, including here in New York. According to reports from gdnonline.com, an appeals court reduced a flower shop owner’s prison sentence in a value-added tax (VAT) evasion case from three years to one year, while keeping the full financial penalties intact. The facts are instructive even though the jurisdiction is foreign, because the underlying pattern — registering for a tax, filing returns, and then failing to remit what was collected — is one of the fastest paths to criminal tax exposure under United States law as well.

At DeFreitas & Minsky LLP, CPA, we work with business owners across New York who find themselves in exactly this situation: the returns went in on time, but the money never followed. Below, we translate the Bahrain case into the U.S. tax framework and explain what may be at stake when a similar pattern appears on a New York books.

What Happened

According to the source report, a 63-year-old businessman who opened a flower shop in 2017 was found guilty by Bahrain’s High Criminal Court of failing to pay more than BD41,000 in VAT. He had allegedly registered with the National Bureau for Revenue, obtained a VAT number, and electronically submitted eight quarterly returns spanning Q4 2022 through Q3 2024 — but reportedly never paid the tax shown on those returns. The business was suspended in mid-2025. Initially sentenced in absentia to three years in prison plus repayment of the unpaid VAT and a matching fine, the defendant later appeared before the Supreme Criminal Appeals Court, which reduced the custodial sentence to one year while leaving the combined financial penalty of roughly BD82,350 in place. Reports also note he was listed on the same commercial registration as two other now-defunct businesses.

Nothing in this article should be read as a finding under U.S. law. The Bahrain decision is final only as to Bahrain law. We use it here as an educational lens for New York business owners.

Who May Be Liable in a Comparable U.S. Case

If a similar fact pattern arose in New York, several parties could face exposure:

• The business owner personally. Sales tax and payroll withholding are “trust fund” taxes under U.S. law. The owner who collects them holds them in trust for the government, and personal liability can attach even when the business is an LLC or corporation.
• Responsible officers and bookkeepers. Any individual with check-signing authority or control over which bills get paid may be considered a “responsible person” under IRC §6672 or New York Tax Law §1133.
• Related entities under common control. When the same owner runs multiple businesses on shared books or shared bank accounts, the IRS and the New York State Department of Taxation and Finance may pursue collection across all of them.

These are potential exposures, not findings. Whether liability actually attaches depends on facts, intent, and the specific tax involved.

Legal Theories That May Apply

In the U.S. context, a pattern of filing returns but not paying could implicate several theories:

• Willful failure to pay tax (IRC §7203). A misdemeanor that can apply when a taxpayer knowingly does not pay a tax owed and shown on a filed return.
• Tax evasion (IRC §7201). A felony requiring an affirmative act of evasion plus willfulness; mere non-payment is usually not enough, but concealment, transfers, or false statements can elevate it.
• Trust fund recovery penalty (IRC §6672). A 100% civil penalty against responsible persons who willfully fail to remit withheld payroll or collected taxes.
• New York sales tax crimes (NY Tax Law Article 37). New York treats failure to remit collected sales tax as a serious offense, potentially a felony depending on the dollar amount.
• New York Tax Law §1817. Criminalizes various sales tax violations including filing a return without paying the tax due.

Each of these requires its own elements of proof, and a knowledgeable CPA or tax counsel can often resolve matters civilly before they become criminal.

Consequences a Taxpayer May Face

In New York and at the federal level, the financial and personal consequences of a similar case could include:

• Repayment of the underlying tax with interest.
• Civil fraud penalties up to 75% of the underpayment.
• Criminal fines that can equal or exceed the tax due.
• Loss of business licenses, including a Certificate of Authority to collect sales tax.
• Suspension or revocation of professional licenses for licensed owners.
• Incarceration in the most serious cases.
• Personal collection actions, including wage garnishments, bank levies, and tax liens against personal residences.

We should be candid: a one-year custodial sentence, like the one reported in the source case, is on the table in serious U.S. tax matters as well. That is precisely why early intervention matters.

Evidence and Records That Matter

If you are a New York business owner concerned about a similar pattern in your own books, the documents that will shape any defense or resolution include:

• Filed federal and state returns (sales tax, payroll, income).
• Bank statements showing the flow of collected tax.
• Point-of-sale and accounting system records (QuickBooks, NetSuite, Square reports).
• Correspondence with the IRS or New York State Department of Taxation and Finance.
• Notices of audit, assessment, or collection.
• Records showing who controlled disbursements (signature cards, board minutes, employment agreements).
• Documentation of any hardship or business interruption that delayed payment.

The sooner these are organized, the more options remain on the table.

What to Do Next

If you have filed returns but fallen behind on payment — or if you have not filed at all — the most important step is to act before the taxing authority contacts you. Voluntary disclosure programs, installment agreements, offers in compromise, and penalty abatement are all options that generally become harder to obtain once a criminal referral is in motion.

A practical checklist:

1. Do not destroy or alter records. Preserve everything.
2. Do not speak with a revenue officer or special agent without representation.
3. Pull together your filed returns and bank records for the affected periods.
4. Watch deadlines — IRS statutes of limitation, New York’s three-year assessment window, and any response dates on notices.
5. Get a qualified tax professional involved before responding to anything in writing.

If you or a family member is facing back taxes, a sales tax audit, or a potential criminal tax investigation in New York, talk to DeFreitas & Minsky LLP, CPA. Call (516) 689-1515 or visit https://dmaccountingfirm.com. Talk to DeFreitas & Minsky for 70+ years of trusted CPA guidance — free consultation.

Frequently Asked Questions

Can I go to jail in New York for filing sales tax returns but not paying them?

Yes, it is possible. New York treats collected sales tax as trust fund money, and willfully failing to remit it can be charged as a felony depending on the amount allegedly involved. Most cases resolve civilly, but the criminal exposure is real and should not be ignored.

Is unpaid tax the same as tax evasion?

Not automatically. Tax evasion under federal law generally requires an affirmative act of concealment plus willfulness, while simply not paying a tax shown on a filed return is more commonly charged as willful failure to pay. The distinction matters because the penalties and defenses differ significantly.

What is a “responsible person” for New York sales tax purposes?

Under New York Tax Law §1133, a responsible person is anyone with the duty or authority to ensure sales tax is collected and remitted — often owners, officers, and certain managers. Responsible persons can be held personally liable for the full unpaid tax even if the business is a corporation or LLC.

What if my business is closed or bankrupt?

Closing or dissolving the business generally does not erase trust fund tax liability for responsible persons. The IRS and New York State can pursue you individually for collected sales tax and payroll withholding. Bankruptcy may discharge some tax debts but typically not recent trust fund taxes.

How long does the IRS or New York State have to come after me?

For filed returns, the IRS generally has three years to assess additional tax and ten years to collect, with longer windows for fraud or unfiled returns. New York’s assessment window is also generally three years from filing, but there is no statute of limitations when a return is never filed or fraud is alleged.

Should I file the missing returns even if I cannot pay?

In most cases, yes. Filing a return without paying typically carries lower penalties than not filing at all, and it preserves access to installment agreements and offers in compromise. A CPA can help structure the filings so that you do not create new problems while solving old ones.

What happens if the state suspends my Certificate of Authority?

Losing your Certificate of Authority means you cannot legally collect sales tax, which effectively shuts down a retail business in New York. Reinstatement usually requires bringing filings current and resolving the underlying balance, often through a payment plan negotiated with the Department of Taxation and Finance.

Can a CPA represent me if the case becomes criminal?

CPAs can represent taxpayers in civil tax matters before the IRS and New York State, including audits, appeals, and collection. If a matter turns criminal, you generally also need a criminal tax attorney, and an experienced CPA firm can coordinate with counsel to protect you on both fronts.

Original reporting: gdnonline.com.