Taxable Talk

One of my first ever blog posts (back in 2005) was short and succinct: “Cops Moonlighting as Strip Club Bouncers Charged with Tax Fraud.” Back in April, 2005, Michael Wellek, the owner of an Elk Grove Village (Illinois) strip club called “Heavenly Bodies” and his policemen workers found themselves in trouble.

It all began when $12 million in cash was seized from a warehouse owned by Mr. Wellek in 2003. The government accused Mr. Wellek of owing $11 million in taxes, penalties and interest. The civil case drags on to this day.

However, after five years there is an update. This past week Mr. Wellek was indicted on tax charges for not filing tax returns from 1989 to 1999 while maintaining that $12 million in a warehouse. The two-count indictment alleges that Mr. Wellek obstructed the IRS and filed a false tax return in 2000. Mr. Wellek’s attorney told both the Chicago Sun-Times and the Chicago Tribune that he expects Mr. Wellek to plead guilty to both charges this week.

Sometimes the wheels of justice turn very, very slowly.

News Stories: Chicago Sun-Times, Chicago Tribune

When I think of sugar, I think of the sweetener you put into a cup of coffee. Or perhaps this song:

But this is a tax blog, so we’re going to deal with something different…something very different. The Sugar House Lounge describes itself as “Denver’s most unique premium lounge and night club.” I’ll say that’s true.

It appears that the Sugar House Lounge was once a brothel, “where customers paid $300 for sex.” The former owner of the business, Scottie Ewing, sold the business back in 2005. Mr. Ewing received $150,000 plus a share of future revenues. Mr. Ewing then instructed the new owner for some time on how to run the business. That all seems normal (except for the prostitution).

I’m guessing, though, that Mr. Ewing left out to the new owners instructions on the necessity of filing tax returns. I say that because he didn’t. He did instruct the new owners on it being a good idea to use a “front company” to own the business.

In any case, last week Mr. Ewing pleaded guilty to one count of tax evasion in what appears to be a plea deal. (Both news stories emphasize the prostitution over the tax evasion.) He’ll be sentenced in late December.

News Stories: Here and Here

After ranting on health care, it’s time for the lighter side of taxes. That means a visit to that old standby, the escort service, where tax trouble is apparently second nature.

Let’s head to Salt Lake City where companionship appeared to have problems. Jodi Hoskins and her then husband, Roy Hoskins, ran an escort service to help with those issues. Companions was its name, and it did quite well. However, you wouldn’t know it if you looked at the Hoskins’ tax return.

They reported income of just over $70,000 in 2002. Their math skills, though, weren’t as good as their ability to live quite well. It seems that they understated their income by just a bit. The actual gross receipts in 2002 were $1,204,354 higher than what they claimed on their return. A “missed it by that much” moment to be sure. That’s an understatement of $485,443 in tax.

Unfortunately for the Hoskinses, the IRS and the Department of Justice discovered the evasion. Roy Hoskins pleaded guilty earlier this year; he’ll be sentenced on April 15th (how appropriate). Last week, Jodi Hoskins was found guilty of one count of tax evasion. Besides the restitution that will undoubtedly be ordered Ms. Hoskins is likely looking at a visit to ClubFed.

So if you run an escort service, be mindful that the IRS is well aware that it’s a cash business. Just report the cash, pay your tax, and live a somewhat less lavish lifestyle.

I’m heading to Florida tomorrow, so posting will be light to non-existent until the weekend. Until then, here’s yet another story of someone who got into tax trouble from a strip club. And, yes, the name of the individual did grab my attention.

Matthew Fox (no relation) was a bouncer at an Atlantic City, New Jersey strip club beginning in 1998. Later he was the manager of the club. Last week a jury convicted him of five counts of tax evasion for not reporting the approximately $400,000 he earned from the club (and evading about $110,000 in taxes according to this story). Mr. Fox and his wife were acquitted on a count of criminal conspiracy.

The indictment alleged that Mr. Fox was paid in cash for his work, but didn’t report the cash as income on his tax returns. Whether you are paid in cash, checks, or casino chips is irrelevant—in general, all wage income is taxable.

So if you do end up working at a strip club, do yourself a favor and report your income. It’s a lot easier and cheaper to pay the taxes now then it is to find yourself in court on trial for tax evasion.

“Billy, Billy don’t you lose my number
Cos you’re not anywhere
That I can find you
Oh now Billy, Billy don’t you lose my number
Cos you’re not anywhere that I can find you, oh no”
(Don’t Lose My Number, by Phil Collins)

There are a lot of people hoping that one person did lose their phone number. Remember Deborah Palfrey, the alleged D.C. madam who wanted to sell her phone list of clients? Well, her phone records have now been released to the public. You can go to this website and attempt to get the records. I say “attempt” because so many people have gone to the site that the website is currently down! A judge last week lifted the injunction against Ms. Palfrey posting her list.

Already, one Senator has found his name on the list. Senator David Vitter (R-LA) said in a statement, “This was a very serious sin in my past for which I am, of course, completely responsible.” His name won’t be the only one found on the list.

Meanwhile, Congress continues to look more like a “do-nothing” Congress as far as tax legislation and pressing issues such as AMT relief. Perhaps our representatives will look at fixing real problems rather than covering their past transgressions…though I doubt that’s going to happen.