IRS, vice cops don’t let cabbies off hook on sex industry tips

Limousine and cab drivers didn't invent the cash kickback system that rules the local adult industry.

They do, however, benefit from it.

The game is almost as old as Las Vegas. Want to generate customers for your topless joint, massage parlor, or brothel? Let the word out there's something extra in it for drivers who deliver. And they do deliver.

Strip resort doormen catch a piece of the action for steering tourist sports to the drivers, many of whom suggest the clubs and parlors that kick back the most cash. When the tips are big, the drivers will sometimes give customers free rides. Depending on the competition and the economy, the cash can turn an average night running the street into a genuine score.

When the spiff was $5 or $10, no one seemed to care. But when the kickbacks stretch from $50 to $100 per customer, it was only a matter of time before the Internal Revenue Service caught on.

The IRS first went after the strip clubs, reminding owners their marketing concepts were reportable and taxable. Now drivers get 1099s from the topless clubs. Profits are lower, but the potential tax evasion headaches are minimized.

Trouble is, not all the elements of the local sex industry have been as eager to comply with the law. Maybe the massage parlors figured they weren't attracting much attention since they have managed to proliferate and haven't ranked as a high law enforcement priority. Whatever happens here stays here, you know?

Except it's becoming very clear not much is going unnoticed in the sex industry these days by Metro Vice and its motivated allies at the IRS.

Vice Lt. Karen Hughes acknowledges the cooperation between her office and the IRS Criminal and Civil divisions.

"All I can tell you is that I've got a great working relationship with Paul Camacho," the Nevada IRS special agent in charge, Hughes says. She says the local and federal entities are already working several joint operations and criminal cases are "in the pipeline."

Vice is teaming up with the IRS to combat sexual exploitation and human trafficking in the prostitution racket. On one end are the traffickers and pimps who live large off prostitution. They like to show off their expensive cars, jewelry, and homes, and have done so brazenly on the Internet. Not surprisingly, they are less than punctual when it comes to filing their taxes.

On the other end are thousands of working-class Las Vegans who rope and deliver customers. At local massage parlors, a $140 massage can result in $70 kicked back to the driver. They also are getting cash for customers at local residential brothels, I'm told.

It's clear from the memorandum that the drivers are on the IRS radar.

The Dec. 8 missive from IRS Employment Tax Operations Chief John Tuzynski to tax territory managers and specialists illustrates the emphasis being placed on tip compliance by "drivers of taxicabs, limousines, tour buses, and other modes of transportation." The memo is obviously aimed at underground cash towns such as Las Vegas.

The "payments are not tips received in the course of employment with the transportation company, but are for services separate and distinct from those the drivers perform for their employer," the memo reads.

The days of dodging the taxman appear to be ending. In IRS parlance, "Examiners need to be alert for situations where payments for services are inappropriately structured or incorrectly classified to negate the information reporting requirements."

The drivers must receive 1099s, or they and the source of the cash can be held liable. Operators of local massage parlors, with their reputation for delivering more than a rubdown, might want to take notice.

After all these years, the IRS is putting drivers on the hook for helping hustle the hookers.

John L. Smith's column appears Sunday, Tuesday, Wednesday and Friday. E-mail him at Smith@reviewjournal.com or call (702) 383-0295. He also blogs at lvrj.com/blogs/smith.