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In the News · Payroll & Cash Businesses

$32M Nail Salon Tax Conspiracy: What Cash-Heavy Businesses Should Take From the DOJ Case

7 min read · By Jonathan C. Do, Esq. · May 2026

On May 27, 2026, the U.S. Department of Justice announced that the husband-and-wife owners of a nationwide nail salon chain pleaded guilty to running an under-the-table cash payroll scheme that hid $116 million in compensation from the IRS and caused an estimated $32 million in federal tax losses. One owner faces up to 10 years in federal prison. The other faces up to 5.

It is, by any measure, a serious case. But it is also a textbook example of how a cash-heavy business can drift from "we pay some people in cash" to a multi-year federal conspiracy — and a fair warning for every salon owner, restaurant operator, liquor store, food truck, landscaper, and small construction firm in California that runs even part of its payroll off the books.

What the DOJ alleged

According to the DOJ press release and court documents, Vinh Q. Ho (53) and Thanh Lan Do (34), both of Texas, owned and managed more than 60 high-end nail salons across the United States operating under the brands Anthony Vince Nail Salons, Prive Nail Spas, and Zen Nail & Spas. Ho served as the de facto CEO; Do oversaw salon management.

Their nail technicians earned a significant portion of their wages in cash. According to the plea agreement, at year-end the business prepared Forms 1099 that excluded the cash portion of each technician's compensation. Ho and Do trained their salon managers to operate this under-the-table payroll and instructed employees to keep the true compensation figures hidden from the IRS.

Ho also pleaded guilty to a separate count of tax evasion — he had underreported his own income on his 2020 and 2021 personal returns.

The numbers in the plea agreement are remarkable:

• $116 million in cash compensation, paid between 2016 and 2024, never reported to the IRS
• $32 million in estimated federal tax loss
• One conspiracy charge against each defendant; tax evasion against Ho individually

The case was prosecuted out of the Southern District of Ohio by U.S. Attorney Dominick S. Gerace II and Assistant Attorney General Colin McDonald of the Justice Department's National Fraud Enforcement Division.

Why this case matters for every cash-heavy business

The Ho/Do case is unusual in its scale. The mechanics of the scheme are not unusual at all. We see the same fact pattern — at smaller scale — in audits and grand jury inquiries throughout California's restaurant, salon, retail, and trades industries:

• Wages paid partly in cash, partly on a W-2 or 1099
• Year-end forms (W-2 or 1099) that only report the documented portion
• Managers trained to keep two sets of books, or two sets of timecards
• Employees coached on what to say if asked

The mistake business owners make is treating this as a quiet, victimless workaround. Federal prosecutors treat it as a conspiracy. And here's the key point that doesn't get said enough: it isn't just the IRS. The same set of facts simultaneously triggers exposure under at least four other agencies.

The five-headed risk of off-the-books cash payroll

1. The IRS — income tax and payroll tax

Unreported cash wages means the business under-withheld income tax, Social Security, and Medicare. The civil penalty regime alone (Trust Fund Recovery Penalty under 26 U.S.C. § 6672) can pierce the corporate veil and hit the owner personally. The criminal regime — as the Ho/Do case shows — goes further.

2. California EDD — state payroll tax and worker classification

California's Employment Development Department audits both unreported payroll and the classification of "1099 contractors" who are really employees under the ABC test (Dynamex / AB 5). Misclassification triggers reassessment of UI, ETT, SDI, and PIT — typically with 50% penalties — plus interest, often spanning 8 years of lookback.

3. CDTFA — California sales and use tax

Hiding cash receipts at the front of the house — common in salons, restaurants, and retail — also hides the sales tax that should have been collected on those receipts. CDTFA auditors use statistical sampling and credit-card-ratio analysis to estimate the underreported sales. This is our firm's specialty: we have reduced six-figure CDTFA assessments built on exactly this methodology.

4. California FTB — corporate / franchise tax

State income tax mirrors federal. When the IRS adjusts, the California Franchise Tax Board generally follows with an information-share assessment.

5. Federal money-laundering and structuring exposure

If cash receipts are deposited into the business or owner accounts in amounts designed to stay under the $10,000 currency-transaction reporting threshold, the conduct can independently be prosecuted under 31 U.S.C. § 5324 — regardless of whether the underlying tax issue is ever resolved.

Three things that turn a civil audit into a criminal case

Most under-the-table payroll problems begin as a civil EDD or IRS examination. They become criminal when one of these three things shows up in the file:

1. A pattern over multiple years. A one-time honest mistake is a civil case. A multi-year pattern with intent to deceive is potentially a conspiracy to defraud the United States under 18 U.S.C. § 371 — the lead charge in the Ho/Do case.
2. Active coaching of others to lie. Training managers on how to maintain a hidden payroll, or telling employees what to say if questioned, transforms a tax error into an obstruction and conspiracy fact pattern.
3. Affirmative false statements on filed forms. A 1099 or W-2 that omits cash wages isn't an "incomplete" filing — it's a false statement on a return. Each affirmative falsity is its own potential count.

If you're worried about your own exposure, here's the order of operations

Step 1. Stop. Don't talk to investigators without counsel.

If an IRS Criminal Investigation special agent, an EDD investigator, or a CDTFA criminal-investigation officer contacts you, do not give a statement — even if you believe you have nothing to hide. Politely take their card, ask them to send any requests in writing, and call a tax attorney immediately. Voluntary statements to investigators are how civil cases become criminal cases.

Step 2. Get the facts straight — privately, under privilege.

Before any disclosure decision, you need an honest internal picture of what's actually in your books. A tax attorney can review your payroll records, bank deposits, point-of-sale data, and tax filings under attorney-client privilege — meaning the analysis cannot be subpoenaed against you the way a CPA's working papers usually can.

Step 3. Talk to a tax controversy attorney about your options.

Depending on the specific facts — how long the pattern lasted, who was involved, what's in writing, what's already been filed — there is a range of paths available, from internal correction going forward to structured voluntary-disclosure programs at the federal and state level. The right path depends on your facts, and the decision is rarely obvious from outside the file. The one consistent rule: the options narrow once an investigation begins. Earlier is always better.

Step 4. Get current going forward.

Whatever else you do, future filings need to be accurate from the next quarter forward. Continuing the pattern after you have notice that it is exposed converts a prior-period civil case into a current-period criminal one.

Step 5. If you have classification issues without willful intent, look at AB 5 safe harbors.

Many California businesses are not running an intentional cash scheme — they have simply misclassified workers as 1099 contractors who don't meet the ABC test. EDD and the FTB both offer settlement and reclassification programs for cases like this, and the financial outcome is usually far less painful than waiting for a notice.

The bigger picture

The DOJ does not announce $32 million payroll-tax conspiracies very often. When it does, the announcement is also a message — to other operators in the same industry and to other industries with similar fact patterns. Expect the IRS Criminal Investigation Division, EDD, and CDTFA to be more active in salon, restaurant, and personal-services audits over the next 12 months. Expect indirect-method audits (credit-card-ratio extrapolation, bank-deposit reconstruction) to be the lead investigative technique. Expect the questions to start in the civil examination posture and to escalate quickly when the auditor sees a pattern.

This is one of those moments where the right time to clean up is before the letter arrives — not after.

Sources: U.S. Department of Justice, Office of Public Affairs, "Owners of Nationwide Nail Salon Business Plead Guilty to Tax Crimes" (May 27, 2026); 26 U.S.C. § 6672 (Trust Fund Recovery Penalty); 18 U.S.C. § 371 (Conspiracy to defraud the United States); 31 U.S.C. § 5324 (Structuring); California Labor Code § 2775 (ABC test).

About the author: Jonathan C. Do, Esq. is a tax attorney at Tax Resolution Center LLC in San Jose, with 25+ years of experience representing California businesses in IRS, EDD, CDTFA, and FTB audits and U.S. Tax Court matters. This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship.