The father-son duo behind South Philly cheesesteak shop Tony Luke's pleaded guilty Monday morning to federal charges in a tax evasion scheme that lasted a decade, prosecutors said. The restaurant's flagship at Oregon Avenue and Front Street, a staple in the city since 1992, concealed the earnings of the business and developed an elaborate scheme that involved paying employees partially off the books.
Anthony Lucidonio, Sr., 84, of Philadlephia, and Nicholas Lucidonio, 56, of New Jersey, each pleaded guilty to one count of conspiracy to defraud the United States. The crime carries a prison sentence of up to five years.
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The IRS investigation stemmed from a rancorous family dispute that led to the firing in 2015 of Anthony Lucidonio Jr., better known as Tony Luke Jr., who later sued his father and brother and splintered the business into a franchise with multiple locations.
The South Philly restaurant at the center of the indictment — the Original Tony Luke's — is not affiliated with the Tony Luke's brand or franchise, which has locations elsewhere in Philadelphia, the surrounding area, New Jersey, Maryland, New York and Washington, D.C. Tony Luke Jr. originally pitched the franchise venture in 2007.
After the family fallout in 2015 resulted in a legal dispute over the future of the business, federal investigators obtained sales records and payroll information that revealed the schemes run at the Original Tony Luke's between 2006-2016.
Tony Luke Jr. was not charged in connection with the tax fraud scheme and immediately distanced himself from the South Philly shop's troubles when the indictment was handed down in 2020.
Investigators found that Tony Luke Sr. and Nicholas Lucidonio failed to deposit millions of dollars in cash to the company's business bank, a maneuver made easier by the substantial share of Tony Luke's customers who pay in cash.
While the restaurant's actual receipts and income were tracked by the store's POS system and sent to the company's administrative offices, the Lucidonios gave their accountant their business's bank account information to prepare and file annual corporate income tax returns based on underreported income.
The Lucidonios also committed payroll tax fraud by writing checks for employees that only represented wages for a portion of their hours worked. The employees were directed to endorse their paychecks back to the Lucidonios and store managers, in exchange for receiving envelopes containing cash that reflected the true number of hours they worked, prosecutors said.
"The cash provided included not only the net amount of their paycheck after taxes, but substantial additional cash wages for the additional hours they worked for which no federal taxes were withheld or paid over to the IRS," the 2020 indictment said.
The payroll scheme led the company's accountant to substantially understate the wages paid to the employees and the payroll taxes owned to the IRS.
During the 2015 lawsuit proceedings over franchising rights and royalties from the Tony Luke brand, the Lucidonios grew concerned that the dispute with Tony Luke Jr. would bring light to the tax fraud.
Tony Luke Sr. and Nicholas Lucidonio directed their accountant to prepare and file amended corporate tax returns for 2013 and 2014 in order to help cover their tracks. These returns reported the approximate true sales and receipts based on the POS records, but the Lucidonios also claimed fictitious business expenses to continue the tax fraud scheme, prosecutors said.
In a plea memorandum filed with the court on Monday, the government said it intends to prove at the defendants’ sentencing hearing that the IRS lost between $550,000 and $1.5 million as a result of the scheme.
“While they successfully misled their accountant, they could not do the same when it came to the IRS,” said Yury Kruty, IRS criminal investigation special agent in charge. “Cases like this underscore the expertise IRS special agents possess and their ability to track down unreported wages paid to employees. Today, Anthony Lucidonio Sr. and Nicholas Lucidonio have taken a step in the right direction by admitting their guilt and accepting responsibility for their actions.”
Attorneys for Tony Luke Sr. and Nicholas said Monday that the cheesesteak shop in South Philly will remain open.