Posts Tagged ‘StripClubs’

I’m Envious

Monday, September 3rd, 2012

Two stories related to one of my favorite topics appeared over the weekend. The first comes out of Michigan, where the state legislature passed a law to ban “tax zappers.” The only zappers I ever heard of were these:

Bug Zappers, Courtesy of Wikipedia

That’s definitely not what Michigan banned. No, these zappers are used to skim cash from registers in cash-basis businesses so that sales could be under-reported. Who were the customers in Michigan? According to this story, Detroit area strip clubs. It appears that sales of the “Journal Sales Remover” may have been better than thought of. I wrote about this product in 2010; it wasn’t a bright idea then and it’s not one today.

Of course, the new Michigan law is overkill. Anyone violating the new law is also violating various sales tax laws, committing tax fraud against both the IRS and Michigan, and likely violating local ordinances, too.

So from Michigan lets head west to Minneapolis. Last Friday night Envy was raided. That’s Envy, the nightclub. Minnesota State Department of Revenue officers raided the club; the DOR alleges that the owners of the club, James and Susan Beamon, may be skimming cash, grossly underreporting withholding taxes, and not paying all their sales tax. This news story notes that per the search warrant the owners of the club reported negligible income for 2009 and haven’t filed 2010 or 2011 returns. And conspicuous consumption may have gotten the owners in trouble:

“Normally, persons with the income levels reported by the Beamons could not afford a high-priced Cadillac,” the search warrant said.

As a reminder, income is taxable whether you make it in cash, checks, or credit cards. That said, the idea that businesses that deal in large amount of cash would be tempted to skim is normal. That’s why cash businesses such as strip clubs and nightclubs are far more likely to be audited than, say, a jewelry store.

[Image from Wikipedia]

Illinois Adopts Strip Club Tax

Sunday, August 19th, 2012

Back in May I posted about Illinois’ proposed strip club tax. We can now remove ‘proposed’ as the tax was signed into law; the tax goes into effect on January 1st.

The tax of $3 per patron will go to support Illinois’ 33 rape crisis centers. I’m not opposed to funding of rape crisis centers (on the contrary, they’re necessary). What I don’t like at all are “sin” taxes — taxing activities that legislators don’t like. All taxes are passed onto consumers — all of them. While the goal of this tax is quite laudable, it will likely cut patronage. As Alan Greenspan said, “Whatever you tax, you get less of.”

Strip Club Tax Proposed in California; Unlikely to Become Law

Tuesday, May 22nd, 2012

There’s now a proposal in California to tax strip clubs. The revenue that would be raised by the tax, proposed at $10 per patron, would go to rape crisis centers in the state. However, because this is a tax it requires a 2/3 vote for passage. Given Republican’s hostility to anything with the word “tax” in it, this measure is very unlikely to become law.

A Poll Tax–No, That’s a Pole Tax in Illinois?

Thursday, February 16th, 2012

Leave it to the Land of Lincoln for an inventive way to raise money. Illiniois State Senator Toi Hutchinson (D-Olympia Fields) is sponsoring a $5 per person pole tax. The tax would impact strip clubs. The strip clubs are not amused. The Chicago Tribune reports:

We wouldn’t want that,” said Tiffany Winkler, manager of the Chicago club Pink Monkey.

The Admiral Theatre is “strongly opposed to the proposed pole tax,” said Sam Cecola, the North Side club’s director of operations.

I remember that Texas implemented a similar pole tax; the Texas Supreme Court ruled it constitutional though the case is still being litigated. Expect a similar battle if Illinois moves toward a pole tax.

Paranomastically, Ecdysiasts Engaging in Deciduous Calisthenics (And Some Basis, too)

Wednesday, November 23rd, 2011

I need to thank Judge Mark Holmes of the Tax Court. Judge Holmes wrote an opinion today that is wonderful and has expanded my vocabulary. It’s also a great case.

Robert Willson bought a bar in Des Moines, Iowa. His bar burned down in 1994, but he persevered and rebuilt. However, Des Moines condemned his bar to expand the city’s airport. The IRS claimed that there was a large capital gain when the city condemned his bar. Mr. Willson disputed that, and the case ended up in Tax Court.

Mr. Willson’s bar catered to hair bands until one of the bands misused a smoke machine and caused the place to burn down. He rebuilt the bar, and rather than my paraphrasing the decision, here’s what Judge Holmes wrote:

He rented out the old house to a tenant who installed minor improvements (e.g., poles) and opened an establishment felicitously–and paronomastically–called the “Landing Strip,” in which young lady ecdysiasts engaged in the deciduous calisthenics of perhaps unwitting First Amendment expression…He also used $169,000 of his $200,000 insurance proceeds to rebuild the bar.

Two things happened around 1999: Des Moines condemned his property and the petitioner visited ClubFed. Mr. Willson did file his 2000 tax return, and the IRS did audit the return. The issue that had to be determined was Mr. Willson’s basis in the bar.

One key issue in the case is the fact that it is a small Tax Court case — an “S case.”

Rule 174(b) allows a taxpayer like Willson to introduce evidence in an S case that would otherwise not be admissible, and it lets us conduct the trial as informally as possible (consistent with orderly procedure) and to admit any evidence we decide has “probative value”–a fancy way of saying any evidence that helps or hurts Willson’s case. This looser rule is important here, because Willson presented his case quite credibly through his own testimony and that of others who worked at the bar or lived nearby during its heyday. Despite the raffish pasts of Willson and some of his witnesses, we found their testimony on his investment in the bar entirely credible.

Basis is always a troubling issue to explain, and this case is messy because of the fire. This case includes both ACRS and MACRS, boot, a fire, and other adjustments. The rest of the case goes into the formula that must be used to determine Mr. Willson’s capital gain. While “there are computations that still need to be made,” it appears that Mr. Willson will likely not owe as much as the IRS claimed.

Case: Willson v. Commissioner, T.C. Summary 2011-132

Denver Madam Pleads Guilty

Monday, July 11th, 2011

Late last year, I reported on Brenda Stewart. Ms. Stewart owned Denver Sugar and Denver Players, a prostitution ring that, per the Denver Post, catered to the high-end of Denver society.

The problem for Ms. Stewart wasn’t the call-girl ring; rather, it was what she did not do with the profits. She forgot that you do need to pay taxes on all income, even income from being a call girl.

This past week Ms. Stewart changed her plea. In a plea bargain, she pleaded guilty to one count of tax evasion; in return, the government dropped 69 other charges (racketeering, money laundering, and witness tampering). She also agreed to make restitution of $45,000 in back taxes and penalties.While Ms. Stewart could receive up to five years at ClubFed, it’s far more likely she’s looking at one year at ClubFed.

Wellek Gets 1 Year at ClubFed

Monday, February 7th, 2011

There’s something about strip clubs that make them go hand-in-hand with tax evasion. Michael Wellek owned three such clubs in the Chicagoland area. Back in 2003, the IRS seized $12 million from a warehouse owned by Mr. Wellek. And that’s where the story stayed, more-or-less, in 2005 when I first reported on it.

Sometimes, though, there’s a reason that the story goes on ice. In this case, Mr. Wellek began cooperating with the IRS. Five years later, it was announced that he would soon plead guilty; one month later, he did.

Last week, Mr. Wellek found out his sentence. He received one year at ClubFed, and must pay $363,000 in restitution above the $5.5 million he’s already paid. If he hadn’t cooperated its almost certain he would have received years at ClubFed rather than a year.

If you become the owner of a business–especially an owner of a strip club–remember that cash income is just as taxable as checks and credit cards. If you decide to stash the cash you’re likely to find yourself stashed at ClubFed.

Denver “High-End” Madam Indicted on Tax Evasion Charges

Monday, November 22nd, 2010

Somehow tax evasion goes hand-in-hand with strip clubs and escort services. And if the government is correct in its allegations, a Denver madam will soon have plenty of time at ClubFed to reflect on this.

Brenda Stewart apparently owned Denver Sugar/Denver Players. Ms. Stewart began as an employee and then bought the business. Unfortunately, if the indictment is accurate, her business methods were both unusual and illegal.

Ms. Stewart allegedly didn’t bother sending most of her employees 1099s or W-2s. She also allegedly didn’t bother filing a 2006 tax return and understated her 2005 income on that return. Ms. Stewart allegedly created a second company, Phoenix Media and Consulting, LLC. There’s nothing wrong with that. However, she’s alleged to have used that company to shield some of her income from her businesses and not report it. There’s a lot wrong with that (if proved).

As I keep saying, there’s something about strip club owners (and escort service owners) and tax evasion. They go together very well. As usual, it’s a whole lot easier to just pay your taxes…even if you’re an escort service owner.

Selling Software to Cheat the Government Out of Strip Clubs’ Taxes Isn’t a Bright Idea

Monday, November 22nd, 2010

It’s one thing to sell accounting software such as QuickBooks. That product, when used properly, helps companies accurately report their income.

Theodore Kramer sold a very different software product. His Journal Sales Remover made income magically vanish from a company’s books. As the DOJ noted,

In 2001, the owner of two Detroit-area strip clubs requested that Kramer load the JSR program onto his clubs’ computer systems so that the club owner could report less income to the IRS. From about 2001 to about 2004, Kramer periodically visited the clubs to run the JSR program to remove a substantial amount of the clubs’ sales from their computers. The club owner then provided the reduced sales figures to his accountant. With Kramer’s assistance, the club owner understated his clubs’ gross receipts by more than $500,000.

Shock of shocks, a strip club owner wanted to cheat on his taxes. And more shocking is that the IRS would be looking at a strip club’s income (that was sarcasm, of course).

Joe Kristan has more.

Wellek Pleads Guilty, Admits Tax Evasions

Monday, November 8th, 2010

In October I noted that Michael Wellek, the owner of three strip clubs in the Chicago area, would soon plead guilty to tax evasion. He did so last week.

Mr. Wellek admitted he didn’t file a tax return for years where he made more than $2 million. Of course, he made that in cash, and we all know that cash isn’t taxable unless you get caught, right? Well, no, all income is taxable, even cash.

Mr. Wellek also admitted he paid $2.3 million in cash to employees of his strip clubs and didn’t issue reports (either 1099s or W-2s). The report notes that Mr. Wellek plans on cooperating with the IRS. If you were one of his employees, I hope you included that cash on your tax return or you might be getting a knock on your door from the IRS.