Taxable Talk

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.

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.