Joe Cesa, who opened the locale in 2001 as the first fair-trade coffee house in the area, said an Internal Revenue Service audit of his business that was supposed to be routine turned out to be anything but.
The IRS contacted Cesa last July 23 to notify him he was going to be audited through the Small Business and Self-Employed Tax Center.
“It was like getting divorce papers in the mail. Your alarm goes off, and the first thing I thought was, ‘Did I do anything wrong? No, I didn’t,’” he said. “So I brought the letter to my accountant and he basically asked me the same thing, if there was anything he needed to be aware of, and I said no. So he said, ‘OK, this looks like it’s a routine audit, no big deal.’”
The first day of the audit, the auditor met with Cesa’s accountant for about seven hours and then stopped by the store for a site visit, where, according to Cesa, she began behaving unprofessionally and disrupting his business, throwing papers at him and drawing attention to his financials while customers were present.
“She’s in the café doing a site visit, and people aren’t supposed to know this is going on. She’s standing in the middle of the room and she’s talking about stuff, like ‘Where’s the inventory? You have to have more inventory; you spent however much money on coffee. Where is it?’” Cesa said. “So people could hear it. If someone’s walking around yelling about how much money you spend a year and how she can’t see where all your coffee is, it would make people think that something’s wrong.”
Cesa said the duration of the audit was not much better than the initial visit.
He said that numerous times throughout the process, he and his accountant supplied the auditor with the requested paperwork, but she later asked for the materials several more times, prolonging the process.
“My accountant started documenting that we had these papers, they were there; she may or may not have looked at them, but they were there,” he said. “She was asking for stuff that we have provided and sometimes even stuff that she said she read, so it looked like we’re not being cooperative. My accountant said he’s been doing this for 20 years and he’s never, ever seen an audit like this.”
David Stewart, Philadelphia IRS spokesperson, said the agency recommends that taxpayers who are sending documents to the IRS do so via certified mail to keep track of their submissions on their own. He said auditors also take measures to document what materials they receive.
“We will send out a letter that’s called an Information Document Request, asking for documents A, B, C and D, to keep track of what we ask for,” Stewart said. “And then we also have appointment records. When we’re meeting face to face with someone and they show or give you a document or we discuss it, we’ll write down in a log book what we discussed and what documents were reviewed.”
According to Cesa, this did not appear to be the case with his auditor. In October, he wrote a letter to his auditor’s supervisor, detailing the problems of her repeated requests for the same documents.
Cesa said the auditor’s attitude improved after he contacted her supervisor, but that she continued to pursue avenues he felt were unnecessary.
He said that although he was able to produce about 99 percent of the documents she asked for, the auditor alleged he was hiding $200,000 in cash.
Cesa said he doesn’t have health insurance and at the time was driving an 18-year-old car — which he has since given away. He said the auditor later dropped the $200,000 issue and did not mention that money again.
“I’m driving this old car, wearing ratty clothing and have no health insurance, but she’s demanding that I have all this money somewhere,” he said. “And then if it was so important to carry on about this, why would she just walk away from this and forget about it?”
Cesa said the auditor also tried to demonstrate that he had more money than he was reporting by inaccurately accusing him of opening a second business. Cesa said the auditor was referring to a small kiosk he was planning to open in Greenable, an environmentally conscious building supply and design company on Market Street.
“She said, ‘He’s opening a restaurant. I know it, it’s on his Web site. He’s expanding.’ And my accountant said, ‘He’s opening a kiosk. Do you know what a kiosk is?’ I was going to rent this tiny space from a business that’s already open, and she’s trying to call it a restaurant?”
After having purchased all of the equipment for the kiosk, he later had to discontinue plans to open because of the audit.
The auditor additionally contended that Cesa was not claiming all of his income.
On two separate occasions, Cesa allowed two friends to spend a few months living with him because of home renovations and other issues, and the two gave him a small amount of money each month for such expenses as television and Internet. Although there was no lease or any formal rent agreement, the auditor said it qualified as income on which he had to pay taxes.
Cesa said it appeared to him that the auditor was determined to find financial wrongdoing on his part.
“If you were fishing at a spot on the river, and you’re there for five hours and you don’t pull up anything, you’re not even getting a boot, something tells me that most people would pick up and go look somewhere else,” he said. “This woman would sit there until she dies.”
Cesa said the auditor never projected any outright homophobia, but he’d had numerous ACT UP posters hanging in his windows during her site visits.
Cesa contacted U.S. Sen. Arlen Specter’s office last fall to request intervention, and a representative of the senator’s office filed a complaint on his behalf with the Tax Advocacy Service, an internal IRS agency that provides support to individuals or businesses with grievances against the IRS. Cesa said a TAS agency contacted him in October, but did not return numerous calls Cesa placed to him between then and December.
Cesa said the auditor eventually determined that he owed the IRS $2,000, which he agreed in mid-January to pay.
Stewart noted that taxpayers unsatisfied with the audit process or its results have the option to appeal the case in U.S. Tax Court or District Court, which Cesa said he ideally would have done — but a tax lawyer would have cost him an additional $4,000, which he did not have.
Under the agreement, Cesa will now pay the IRS $75 a month until the balance is paid off.
Cesa estimated the audit cost him more than $20,000 — in accountant fees, payment to employees who ran the store while he was working on the audit, and about $2,000 in lost income he previously received from cooking snacks for a kindergarten program, which he had to stop during the audit. Cesa also said the excessive hours he spent gathering materials for the audit — which he approximated at about 10 full work weeks out of the six-month period — also prevented him from updating Joe Coffee’s Web site or doing any advertising for the store, which he surmises also impacted his business.
Joe Coffee shut down May 27, and Cesa said he now plans to sell his products at Pumpkin Market, 1610 South St., as well as at the weekly Headhouse Market this summer, but that he will also have to seek employment elsewhere to make ends meet.
“I’m going to be paying them this pittance every month for a very long time. If I hit the lottery and got $4,000, I’d go to court tomorrow, because this just wasn’t right,” Cesa said. “If this is supposed to be normal and happening to everyone, then right now there’s a retired widow in her kitchen in Northeast Philly having someone screaming at her that she’s a deadbeat and a drain on society. Either I was singled out for something, or they just do this to people at random, but either way, it’s wrong.”