IRS: Popular Lexington Mexican eatery chain likely underreported income by $2.3M
A popular Lexington Mexican restaurant was likely underreporting its receipts by more than $2.3 million over five years, according to unsealed records related to an IRS search of the restaurant last week.
The records, unsealed Tuesday by U.S. District Court for the Eastern District of Kentucky Magistrate Judge Matthew Stinnett, reveal a wide-ranging investigation into Mi Pequena Hacienda, a thriving restaurant business with locations on Lansdowne Drive in Lexington and in Jessamine County.
Investigators went undercover, subpoenaed bank records, covertly dined at both locations, and traced assets across multiple locations, according to an affidavit written by a special agent requesting to search the property.
The restaurants are owned by Lorena Gallegos. Her husband, Julian Gallegos, was also involved in the business.
IRS criminal investigations agents were observed entering the restaurant last Tuesday. Multiple state police cruisers were also present.
The search warrant was approved by Stinnett July 29 and the search was carried out Aug. 5.
The investigation dates back to at least February 2024, when undercover agents met with broker Steve Pulliam and advisor Justin Ryder. The restaurant was listed at $1.12 million with a reported cash flow of $100,000. Ryder told the agents that it was a “cash cow” for the owners, who recently renovated their home using proceeds from the restaurant and were building a “huge” house on a recently purchased coastal property in Mexico.
That picture did not jibe with what had been reported in tax documents.
Over five years, the Lansdowne Drive location reported losing $47,372 in total business income. In four years, the Jessamine County location reported $138,846 in total business income.
Ryder also mentioned to an undercover agent that Gallegos and her husband were likely concealing the true cash flow of their restaurants.
“Ryder further commented, to the (undercover agent), that the $100,000 in reported cashflow did not make sense for the asking price, suggesting Gallegos and Julian were likely concealing the true amount of cash they were taking in from (the restaurant) out of fear of legal consequences,” the affidavit reads.
Subpoenaed bank records confirmed that the Gallegos family was taking in more than they reported.
Gross receipts at the Lexington location were underreported by almost $1.6 million over five years. In Jessamine County, the owners underreported the receipts by $758,000 over four years.
In joint tax filings, the Gallegos family reported about $205,000 in salaries or wages each year over the last five years. They reported variating amounts of “other income” in different years, causing their total income to be as high as $451,000 in Fiscal Year 2021 and as low as a loss of $269,000 in Fiscal Year 2023.
In October 2024, agents dined at the Lansdowne location for a covert lunchtime meal where they observed cash and card payments being transferred at different kiosks. On July 7, 2025, agents ate lunch at the Jessamine County location and observed workers’ use of an iPad app, Toast, to process credit card transactions.
The restaurant’s use of the app, the agent wrote in the affidavit, would assist them in their investigation.
All of this led to IRS agent’s conclusion: “Based on my training and experience, and the facts as set forth in this affidavit, there is probable cause to believe that Lorena Gallegos willfully underreported income obtained from her two restaurants... for tax years 2019 through 2023.”
A spokesperson for the IRS has yet to respond to a request for comment on the status of the case. A Kentucky State Police spokesman has not responded to a press inquiry.
This story was originally published August 15, 2025 at 2:49 PM.
