UPDATE: August 18 at 6 p.m.
Federal documents reveal the owner of two popular Mexican restaurants in Lexington and Nicholasville is under investigation by the IRS for allegedly under reporting income by more than $2.3 million over a four-year period.
The investigation involves Mi Pequeña Hacienda restaurants on Lansdowne Drive in Lexington and at Brannon Crossing in Nicholasville, where IRS agents and state police conducted operations at both locations last Tuesday.
According to court documents, IRS agents suspect owner Lorena Gallegos of under reporting receipts from the restaurants by more than $2.3 million from 2019 to 2023.
The documents describe a potential tax evasion scheme, noting bank records show discrepancies between actual deposits and reported income. As part of their investigation, agents even dined undercover at both restaurant locations.
Despite the investigation, the restaurants remain open and continue to serve customers. On a recent Monday, both locations were busy during lunch service.
"We've always had a great experience here. The food is really good. Authentic Mexican. Probably the most authentic restaurant around here," said Ben Hill, a repeat customer.
Mi Pequeña Hacienda addressed the situation on Facebook, stating: "At this time, we are fully cooperating with the ongoing process. We remain committed to transparency and compliance, and we will continue to serve our customers with the same dedication and hospitality they've come to expect."
For loyal customers like Hill, the allegations came as a surprise.
"I couldn't imagine anything weird going on like that. It's hard to believe. They've definitely got our support," Hill said.
Hill emphasized his continued support for the local business despite the investigation.
"Hopefully people continue to come here and support them, them being a local restaurant. It's good food and it's hard not to keep coming back," Hill said.
Neither the IRS nor state police have commented on the case.
Original Story:
Federal documents revealed that Lorena Gallegos and her Mi Pequeña Hacienda restaurants in Lexington and Nicholasville are under investigation for allegedly violating federal tax law by underreporting income.
The documents detail that Gallegos allegedly "willfully underreported income obtained from her two restaurants." Gallegos allegedly reported $100,000 in cash flow, however, her accountant later told a broker that the actual net income was $475,000 for 2023.
In addition, the documents described a potential tax evasion scheme by the business, noting that bank records show discrepancies between actual deposits and reported income.
From 2020-2023, the total deposit for the businesses was recorded as $12,640,875, while the reported gross income was $11,882,460, suggesting around $758,415 in underreported income. The documents also claimed that there was potential use of unreported income for personal gain including funding for foreign investments.
On Aug. 5, federal agents executed a search warrant at Gallegos' residence, resulting in the seizure of 32 boxes of evidence that included business records, bank statements, electronic devices, and more.
On Sunday, the general manager of Mi Pequeña Hacienda, Julian Gallegos, reassured customers that the restaurants will remain open for business following a visit by the IRS and Kentucky State Police on Aug. 5 at its Lexington and Nicholasville locations.
Julian released a statement on Facebook Sunday evening.
Operations of the restaurants will continue as usual.
