Posts Tagged ‘StripClubs’

Those “Extra Services” Were Great for Business

Sunday, January 17th, 2016

Tips are one of those things that are done for many services. When we go out to eat, we normally leave a tip for the servers. I tip when I get my hair cut. A Denver massage parlor owner had a different idea about tips, and it likely led to an investigation that will probably lead her to ClubFed.

Jung Yoon Choi owned and operated three massage parlors in the Denver area from 2009 to 2010. Each location had a manager and workers who gave massages. Absolutely nothing out of the ordinary for a massage parlor. “Each of the spas typically had a fee schedule according to which customers paid a door fee ordinarily ranging from $40 to $50, depending on the amount of time requested (30 to 60 minutes were the norm).” That seems normal, too. It was the extra services that were an issue:

In addition, customers at the various spas often paid an additional fee which was characterized as a “tip” in many instances for “extra services” provided by Choi’s workers. At times, the “extra services” consisted of prostitution services in violation of Colorado Revised Statute, 18-7-201. Specifically, the workers would engage in sexual acts with customers in exchange for money. Choi was aware that such illicit activity was occurring at times in each of her spas and that business income was being generated from such activity.

That’s a different kind of tipping. Most likely, the FBI started to investigate and naturally wanted to look at the tax returns for the business. There was just one problem with that: No tax returns had been filed for the business or herself.

In addition to not filing tax returns and not paying taxes, Choi further impeded the IRS’s collection of taxes by several means, including: using nominees on bank accounts so as to conceal her business income; conducting cash and business transactions using nominees; conducting financial transactions in amounts that were less than $10,000 so as not to trigger the filing of currency transaction reports; and hiding and storing income in the form of cash hoards at various locations.

That brought in IRS Criminal Investigation, and not only did they discover all of this, they found $118,575 of cash in a storage locker. That’s now been forfeited. Additionally, Ms. Choi has pleaded guilty to one county of obstructing and impairing the laws of the IRS. She’ll be sentenced in April.

Uber and Under-the-Table Kickbacks

Sunday, October 4th, 2015

The ride sharing services Uber and Lyft are now active here in Las Vegas. There’s an interesting article on Buzzfeed about how Uber and Lyft got into Nevada. One of my clients asked me a question: Does he have to pay income tax on kickbacks from the local strip clubs, err, gentlemen’s clubs?

The last time I checked the Tax Code there was no exemption for kickback income from these clubs. Yes, it’s taxable. And further, some of the clubs are now issuing 1099s for these kickbacks. The IRS has investigated both clubs and taxi drivers here in Las Vegas in the past few years. The IRS ordered clubs to issue 1099s and taxi drivers to report kickbacks as income. Uber and Lyft drivers will also have to report their income…unless they want to get in trouble.

Not Remitting Employment Taxes Doesn’t Work in Japan Either

Sunday, August 9th, 2015

In the United States, one of the quickest ways of getting in tax trouble is by withholding employment taxes and not remitting those taxes to the IRS. The rate of investigation is as close to 100% as you can get–and it’s normally a criminal investigation. It appears the same holds true in Japan. This story has a second component: There’s something about strip clubs–err, adult entertainment facilities, that make them hotbeds for tax evasion.

From Osaka, Japan comes the story of Naoko Hayashi. The 52-year-old former manager of the Jumeirah hostess club has been indicted and charged with not remitting 57.7 million yen ($464,000) out of 83.2 million yen ($669,000) withheld from pay of the hostesses working in the club. The article in the Tokyo Reporter notes that it costs a minimum of 50,000 yen ($402) to enter the club.

Among the problems with not remitting withholding tax is that it’s a crime that’s fairly trivial to prove. The payroll records will show the withholding, and the National Tax Agency and the Osaka Regional Taxation Bureau won’t show the withholding. It’s also a crime that is guaranteed to show up: When the hostesses file their tax returns and claim the withholding the tax agency won’t see it. But it appears the Bozo tax contingent is equally active in Japan as in the United States.

Varagiannis Gets 15 Months for Tax Evasion

Tuesday, January 6th, 2015

Manny Varagiannis received 15 months at ClubFed for tax evasion. Mr. Varagiannis was arrested back in 2012 on a count of structuring, but pleaded guilty in April to not paying $230,651 in taxes. He must also make restitution.

The charges relate to Midnight Entertainers, an escort service here in Las Vegas. Mr. Varagiannis supposedly sold the business, but back from 2009 – 2011 he didn’t report all of his income from it…and got caught.

According to the Las Vegas Review Journal,
the US Attorney and the Las Vegas police believe that Mr. Varagiannis is offering kickbacks to cab drivers and others. It was also alleged that Mr. Varagiannis remains the real owner of Midnight, Inc. (the legal name of Midnight Entertainers) and the current owners are just fronting him. It’s definitely possible that Mr. Varagiannis may face more charges over these allegations.

In any case, Mr. Varagiannis will be reporting to ClubFed in April.

Happy Nevada Day, Especially If You’re a Performer at a Gentleman’s Club

Friday, October 31st, 2014

Today is Nevada Day! Exactly 150 years ago Nevada was admitted as a state. The Nevada Supreme Court yesterday ruled on a case that may make this day more celebratory for workers at adult entertainment facilities (strip clubs).

Several performers at Sapphire Gentleman’s Club sued the club alleging they were employees and not independent contractors. The district court ruled that they were independent contractors. They appealed to the Nevada Supreme Court.

The Nevada Supreme Court reversed the district court decision. The Court noted that the performers sign a contract, and the Court ruled that even though the contract states they won’t be employees, the actual relationship “is an express contract of hire.”

The Court then ruled that the Fair Labor Standards Act (FLSA) economic realities test should be used to determine who the employer of the performers is. The Court noted that while it might appear that the performers weren’t under the control of the club (they could choose their own schedule, whether to dance or not, etc.), appearances were deceiving.

But by forcing them to make such “choices,” Sapphire is actually able to “heavily monitor [the performers], including dictating their appearance, interactions with customers, work schedules and minute to minute movements when working,” while ostensibly ceding control to them. This reality undermines Sapphire’s characterization of the “choices” it offers performers and the freedom it suggests that these choices allow them; the performers are, for all practical purposes, “not on a pedestal, but in a cage.” [citations omitted]

The Court noted that other economic realities test factors made the performers appear to be employees rather than independent contractors. The Court unanimously reversed the district court decision, and remanded it back to the district court for a trial on damages.

The attorneys representing the performers note that they could be looking at $40 million of back wages. However, Nevada’s minimum wage law allows employees who receive tips (and clearly the performers at these facilities receive tips) to be paid well under the minimum wage, so damages could be far smaller.

Victory for Lap Dances in Philadelphia

Saturday, July 19th, 2014

The City of Philadelphia has a tax on amusements; it’s a 5% sales tax. Are lap dances performed at adult entertainment facilities subject to that tax? A court in Pennsylvania ruled no.

Philadelphia billed three strip clubs adult entertainment facilities $1.5 million for the tax, penalties, and interest covering 2008 – 2010. The three clubs appealed to Philadelphia’s Tax Review Board that the tax was vague and couldn’t be applied to lap dances. Philadelphia lost at the Board and appealed to court.

The court ruled that the Board was correct and the tax can’t be applied on lap dances.

“The ruling is simply that the (tax) ordinance, as it exists, as it’s currently worded, doesn’t cover lap dances,” says attorney George Bochetto…, who represents two of the three clubs that were being taxed. “If the city wants to tax lap dances, they can go to City Council, ask City Council to amend the ordinance, and they can start imposing a tax on lap dances. Or anything else they want: karaoke songs, piano playing. Anything they want. But you have to put it in the ordinance. You just can’t make it up as you go along.”

The city can appeal the decision and must make a decision within one month.

Nite Moves Asks Supreme Court to Rule on Constitutionality of Taxing Pole Dances in New York

Sunday, August 11th, 2013

When I think of “Night Moves” I think of a Bob Seger song. That’s not what this post is about. It seems that the upstate New York adult entertainment facility named Nite Moves isn’t happy with a New York state sales tax on pole dancers. The essential question: Is a tax on just certain kind of music or entertainment legal?

New York’s highest court, the Court of Appeals, held in a 4-3 decision that a sales tax on pole dancing is just fine. The owner of Nite Moves, Stephen Dick, has filed a writ of certiorari with the US Supreme Court asking the Court to overturn the tax. The question of whether pole dancing is a form of art or something that doesn’t promote culture (and so can be taxed) might be argued next Spring in Washington.

Speaking of Night Moves:

No More Tax Credits for Strip Clubs in California

Sunday, July 7th, 2013

The California legislature banned strip clubs from obtaining hiring tax credits. The legislation, which passed the state legislature last week, is expected to be signed into law by Governor Jerry Brown in the next few days. The specific legislation banned “sexually oriented businesses” from claiming California tax credits.

In other California tax news, the state legislature also eliminated the Enterprise Zone program — the program that led to most hiring tax credits in the state. That legislation is also expected to be signed into law in the coming days.

Cash and Carry Doesn’t Work for Strip Club Owner

Sunday, January 27th, 2013

A running theme of this blog is that it doesn’t matter how you are paid; income from cash is just as taxable as checks or credit cards. But it’s so tempting when you receive cash; who will notice if a few dollars go missing from your tax return?

That was apparently the idea of Kirk Roberts of Salina, Kansas. He owned the Wild Wild West Gentlemen’s Club in Salina. From 2006 through 2008 he carried his cash home and deposited it into his personal bank account rather than his business account. Strip, er, gentlemen’s clubs do take in a lot of cash, and the Department of Justice noted that Mr. Roberts understated his income by $537,942. That’s plenty of cash; I assume that either currency transaction reports or suspicious activity reports led to an investigation.

Mr. Roberts pleaded guilty last week to three counts of filing false tax returns; he’ll be sentenced on April 22nd. Given the tax loss of over $153,000, he may also be looking at a stint at ClubFed. Unlike the Wild Wild West, I don’t think there are any house dancers at ClubFed.

Escort Service Operator Charged with Structuring

Monday, October 8th, 2012

Here in Las Vegas, escort services and strip clubs are big business. They’re also (generally) cash businesses. A joint police task force has been looking into the operations. The local police are concerned about prostitution (it is illegal in Clark County, which includes Las Vegas); federal authorities are interested in tax evasion. One local man has found himself charged with structuring.

As I’ve reported before, structuring is deliberately making cash deposits under $10,000 so as to avoid currency transaction reports. It’s a felony.

Emmanouil Varagiannis has been charged with structuring. Mr. Varagiannis is the general manager of the Olympic Garden. He’s alleged to have made 208 cash deposits totaling more than $1.8 million…all under $10,000. The structuring apparently relates to Midnight Inc.; that entity, which does business as Midnight Entertainers, is an escort service.

The news story in the Review-Journal noted that the task force continues to probe allegations of prostitution and kickbacks to cab drivers who direct customers to specific strip clubs. It is worth noting that Mr. Varagiannis has only been charged with one count of structuring and has not been charged with anything else.