IRS targets strip clubs, taxis over bonuses


The IRS is finally cracking down on the way strip clubs give $10 to $100 in bonuses to taxi and limo drivers for every customer they deliver. In a month or two, the IRS is expected to demand that strip clubs give 1099 forms to drivers.

That may sound simple. But this could lead to the IRS collecting tens of millions of dollars in cash to cabbies and limos, each year. That money has been going underreported for decades, presumably.

The law already says clubs must give 1099s to drivers. But clubs have not done so, partly out of anxiety that drivers might take customers to rival clubs that don't make them deal with 1099s.

Last year, the IRS was clued in on how much money it was missing out on. The agency subpoenaed strip club records, looking for possible criminal violations.

A few weeks ago, the IRS called clubs. About 40 club execs and 10 IRS agents sat down, and the IRS suits told them: You won't be criminally charged for the past, but you will start handing out 1099s or we will shut you down and send you to jail.

This could shake the foundation of the way millions in cash changes hands among hotel doormen, cabbies, limo drivers and strip clubs.

Here's how part of the quid pro quo works:

Various hotel doormen ask people in taxi lines where they're headed. Doormen aren't necessarily interested in tourists' sunny day. They're also trying to find out which tourists want to go to a strip club. When a doorman finds guys looking for naked ladies, they may pull them out of a taxi line and say, "Let me put you in this free limo."

Cabdrivers hate that, because it takes strip club cash out of their pockets.

Then that limo driver takes his riders to a strip club, gets paid by the club an extra $10 to $100 per rider, then heads back to the doorman and gives him as much as one-fourth to half of that strip club cash.

One irate cabdriver told me Saturday night that some doormen have cash overflowing out of their hats and pockets.

By law, a limo driver must then give the doorman a 1099 form showing how much money the doorman made off of that transaction. But even with new IRS heat, I couldn't find anyone who thinks drivers will give 1099 forms to doormen.

"Imagine giving him that!" a limo driver told me Saturday night.

That limo driver said if he gets $200 in strip club money for one ride, he has to give $40 to his limo company to cover the "free ride," then he splits cash with the doorman. Under an IRS crackdown, if the limo driver doesn't give a 1099 to that doorman, the limo driver will end up paying taxes on cash he gave to the doorman.

"It's not like I don't want to pay taxes. But I tip a LOT of people," the limo driver said. "Everybody's worried about it."

Drivers told me some hotels execs are anxious the IRS is involved, even though strip club cash supplements doormen's wages. (By the way, Steve Wynn officially disallows the strip club/doorman practice, drivers say.)

Drivers also told me there was absolutely, positively no way any doorman would talk to me about any of this, since it has to do with cash and the IRS. A typical doorman I approached (I asked: "Are you worried about drivers' giving you 1099s?") looked at me flatly and claimed, "I haven't heard anything about it," said nothing else, and didn't ask me what I was talking about.

A different taxi driver says so many strip clubgoers are rerouted into limos at MGM that he and some other taxi drivers boycott the hotel.

That taxi driver's routine: He advises customers on which club to hit, and nine out of 10 listen. If the worst strip club in town suddenly offered him $130 per rider, he'd take them there.

Some days, every club magically pays the same amount. The taxi driver told me that's when he asks a customer what he's looking for -- full nude, "friendly girls" or booze -- and he honestly takes them to an appropriate spot.

The taxi driver also said strip clubs aren't the only businesses giving him bonus cash: Drivers get delivery bonuses from massage parlors and a swingers spot; a high-end car rental has offered cash to taxi drivers; escorts from girl-to-room street cards can bring in $150 to $200 in an envelope. Even a golf business has paid $2 per fare.

And brothels! Brothels dish out 30 to 40 percent of a john's cash to drivers. The taxi driver told me that for one trip, he could get $300 to $400 from a brothel, plus $350 for the round trip fare, and he can wait for the john in the brothel's "driver's lounge," play pool, watch TV and be "mingling with the girls."

Brothels have always given him a 1099 form. Brothels: Forever on the up-and-up.

Anyway, he said, "If taxis stop taking people to strip clubs, I think about half of the clubs would go out of business."

"There's a lot of good drivers out there," Palomino strip club owner Adam Gentile told me.

But various drivers have been upset that Palomino pays less than other clubs. So even though tourists tell cabbies they watch the Palomino on the club's own reality show "King of Clubs" on Playboy Channel, some cabbies tell riders it's closed.

"We've heard we were 'burned down.' We've heard we were 'a gay club,'" Gentile says. "I've been in a cab, about a year and a half ago: I tried to get a ride to my own club and couldn't!"

Three months ago, a cabbie dropped off a group of five guys, expecting $150 for $30 a head. The Palomino gave the cabbie $100.

"He threatened us. He tried to push past us to go into the club to take the customers out, and take them to another club," Gentile says.

The customers walked outside to see what the problem was. The cabbie told them to get back in the cab. They refused.

"The driver got in his car and tried to hit the customers with his cab," he said.

Such bad apples are hurting good cabbies' reputations, Gentile says. They think they can get away with anything, because they believe there are no repercussions -- since people in transportation and politics have decided not to do much about anything, he says.

Gentile even cut back on advertising, because various drivers have negated ads by telling customers the Palomino is shut.

On the other hand, it wasn't drivers who created this mess so much as strip clubs that ratcheted up handouts, he said.

Some clubs, on big nights, have paid $70 to $100 per person for 1,000 customers.

Clubs offset handouts with high prices, charging, say, $400 for a $15 bottle of booze, or $37 for two weak cocktails. Some clubs have tried paying taxes on handouts to drivers, but that's a no-go with the IRS.

"It's a bad situation when you're like, 'Oh, thank God, the IRS is looking into us.' That shows you just how bad it had to get," Gentile says.

His club is already giving drivers 1099-like forms, he said.

"I don't particularly like the idea of prison, so I tend to follow the law," he said.

Gentile worries a competitor won't abide by IRS enforcement, which would give that club an unfair advantage if the IRS doesn't crack down immediately.

But in that big meeting a few weeks ago, the IRS encouraged club owners to anonymously rat out rival clubs that don't do 1099 forms.

"Until someone is nailed to a wooden cross as an example to the others, it will continue," Gentile says. "I don't want to be the one nailed to the cross."

Doug Elfman's column appears on Mondays, Tuesdays and Fridays. Contact him at 383-0391 or e-mail him at delfman@reviewjournal.com. He also blogs at reviewjournal.com/elfman.

 

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