IRS nails cheesesteak kings for tax fraud

Pat’s and Geno’s in South Philadelphia are the most famous cheesesteak destinations for tourists who come to Philadelphia. But locals know you’re better off heading a little further south into the city for a steak sandwich at Tony Luke’s (or better yet, the roast pork with sharp provolone and broccoli rabe).

Now the founders of Tony Luke’s are getting media attention for something besides their good food – cheating on their taxes. Eight-four-year-old Anthony Lucidonio, Senior (aka “Papa Luke”) and his 57-year-old son Nicholas were sentenced to 20 months in prison, followed by three years of supervised release, in a case brought by the IRS and Department of Justice.

The Lucidonios filed false tax returns and hid upwards of $8 million in sales income between 2006 and 2016. The IRS estimated the fraud resulted in $1.3 million in unpaid Social Security and Medicare taxes for Tony Luke’s employees.

Like plenty of other businesses in the food and beverage industry, Tony Luke’s paid employees in cash, and off the books. The majority of companies that do this don’t get end up getting caught by the IRS. Papa Luke and his son got caught in large part due to their success … and a painful family split.

Kept 2 sets of books for over 20 years

Tony Luke’s drew big crowds and cultivated loyal customers practically from the start. A third key partner in the success – Papa Luke’s son, Anthony Junior – urged the family to franchise starting in 2007. Today there are Tony Luke’s subsidiaries in Pennsylvania, New Jersey, Maryland, Washington DC, Texas and Bahrain.

Media outlets reported Papa Luke and Nicholas thought they weren’t getting franchise and royalty fees owed to them. They calculated that Anthony owed them $3 million.

By 2015, the relationship had soured so much that Papa Luke fired Anthony. When the firing came down, Anthony and his sons, who also worked for Tony Luke’s, took copies of the company’s financial records out the door with them. The sons reportedly turned the documents over to the IRS.

Financial records showed that Papa Luke and Nicholas were keeping two sets of books – one that showed how much money they were really raking in, and “edited” ones. The Lucidonios turned in the latter books to their accountant for tax purposes.

Knowing their tax scheme was no longer a secret, Papa Luke and Nicholas tried to hide the crime. They filed an amended tax return for the prior year showing higher sales figures. They paid the difference to the IRS.

A lawsuit between the parties split the business apart. Papa Luke and Nicholas still own the original shop in South Philly, now known as Tony and Nick’s Steaks, while Anthony owns the Tony Luke’s name and franchise locations.