As a leading California tax law firm, The Law Office of Pietro Canestrelli, A.P.C. is here to help you navigate the new requirements, minimize risks, and stay focused on growing your business.
What Is SNAP & EBT?
SNAP provides food-purchasing assistance to low-income individuals and families, while EBT is the system that allows participants to pay for eligible items electronically. California is home to a vast network of businesses authorized to accept EBT cards, including supermarkets, convenience stores, and local markets.
If you operate in Southern California and are authorized for SNAP/EBT, you play a crucial role in your community. But with this privilege comes strict federal and state oversight.
2025 Regulatory Changes: What’s New?
- Stricter IRS Scrutiny and Data Sharing: The IRS and USDA are increasing data-sharing efforts, specifically targeting irregular EBT transactions and unreported income. Expect more frequent cross-checks between SNAP sales records and tax filings.
- New Technology & POS Requirements: California is rolling out updated point-of-sale (POS) compliance standards for EBT retailers. If your system isn’t certified or regularly updated, you risk fines or loss of your SNAP license.
- Enhanced Reporting for Business Owners: Businesses must now provide more detailed transaction logs and annual EBT sales summaries. Inaccurate or incomplete reporting can trigger IRS audits or criminal investigations.
- Stricter Penalties for Non-Compliance: The penalties for fraudulent EBT acceptance or tax underreporting have increased. Civil and even criminal penalties are more common, especially for repeated violations.
- Increased Focus on “Ghost Owners” and Ownership Changes: If you buy or sell a business that accepts EBT, you must promptly notify both the USDA and the IRS. Failure to report ownership changes can result in immediate disqualification from SNAP.
IRS & Tax Law Implications for SNAP Retailers
Operating as a SNAP retailer in California brings unique tax law issues:
- Unreported EBT Income: The IRS treats all EBT sales as reportable gross receipts. If your EBT revenue isn’t correctly included on your tax return, you risk an audit. Learn about IRS audit services
- Inventory & Sales Tracking: Misreporting inventory or commingling EBT/non-EBT sales can lead to tax controversy, back tax liabilities, and IRS penalties. Help with back taxes
- Business Structure: How your business is organized (LLC, corporation, sole proprietorship) affects liability and reporting. Entity guidance
- 1099 Filings: If you pay vendors or contractors with EBT funds, ensure accurate 1099 filings to avoid IRS scrutiny. Read more on recent 1099 changes
How to Maintain Compliance
- Update Your POS System: Work with a POS vendor that provides ongoing EBT compliance updates. Maintain all transaction records for at least three years.
- Reconcile EBT and Tax Records Monthly: Schedule monthly reconciliations to ensure EBT receipts match reported sales and deposits on your tax return.
- Stay Current With USDA and IRS Rules: Regulations may change quickly. Bookmark official resources and subscribe to tax update alerts.
- Employee Training: Ensure all staff understand which items are EBT-eligible and know how to handle transactions correctly.
Recordkeeping and Documentation Best Practices
- Retain all POS transaction logs and EBT receipts.
- Keep a dedicated EBT sales ledger.
- Store all correspondence from the USDA and IRS.
- If you outsource bookkeeping, ensure your accountant understands EBT-specific compliance.
- For audits, assemble bank statements, daily POS reports, inventory records, and tax filings.
Poor recordkeeping is a leading cause of lost SNAP eligibility and IRS penalties. Learn more about audit readiness.
Steps If You Receive an IRS Audit or Notice
- Do Not Ignore Notices: Respond by the deadline stated on your IRS or USDA letter.
- Consult a Tax Attorney: Specialized guidance is critical. Contact us today for help with audits.
- Gather Documentation: Prepare EBT statements, daily sales reports, and correspondence.
- Stay Professional: Cooperate with IRS/USDA agents and provide only requested documentation.
- Request Representation: You have the right to professional legal representation during audits. Understand your rights.
Frequently Asked Questions for SNAP/EBT Businesses
- What should I do if my business is accused of EBT fraud?
- Seek immediate legal advice. Penalties are severe, and early intervention can protect your license and business.
- Can I deduct EBT transaction fees on my taxes?
- Yes, in most cases. Keep clear records and consult with your tax professional.
- What happens if my SNAP license is revoked?
- You may lose a significant customer base and face increased IRS scrutiny. Legal appeals may be available—contact our office promptly.
- Are there special rules for California businesses?
- California may impose additional EBT and SNAP regulations on top of federal law. Stay informed and work with a local tax attorney.
- How do I notify the IRS/USDA of business changes?
- File the required forms promptly after any ownership, location, or structure change.
For more FAQs, see our California Tax FAQ.
Conclusion & Next Steps
The bottom line: The compliance burden for SNAP/EBT businesses is higher than ever in 2025. As enforcement rises and the rules become more complex, proactive steps can protect your business, your reputation, and your bottom line.
If you have questions or need help with an audit, compliance review, or reporting requirements, contact The Law Office of Pietro Canestrelli, A.P.C. today. Serving Temecula, San Diego, Riverside, San Bernardino, and all of California, our experienced team can guide you through every step of SNAP/EBT compliance, IRS disputes, and business tax planning.
