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IRS forces nightclubs to keep closer eye on cash customers

Attention Mac Daddies, Slim Shadies, Easy Ladies, and Bernie Madoff wannabes: Your days of using Strip nightclubs and ultra-lounges as a cash playground could be coming to an end.

The Internal Revenue Service is messing with the Vegas Rules again.

The incredible cash flow of the clubs has attracted intense interest from the IRS. In an effort to make the cash transaction reporting rules clearly understood, IRS agents from the criminal and civil divisions recently conducted two meetings with more than 40 high-level local nightclub managers. Las Vegas IRS Special Agent in Charge Paul Camacho confirmed the meetings.

The prevailing theme: Monitor cash customers responsibly, or Uncle Sam will.

"We’re not trying to do a gotcha," Camacho said. "We said we know the majority of people who come to this town are legitimate. This is all about following the rules. The casinos have to do this, and the nightclubs the have to do it, too."

It also sends a message.

"We’re a dynamic agency," Camacho said. "We make an assessment of what goes on in a town and adjust accordingly. We’re in Vegas. I can’t think of another place in the country where we have these types of clubs. They can’t look me straight in the face and say they haven’t had customers spending more than $10,000 in cash. They can’t. …

"I think everyone wants everyone to follow the rules."

I’m not so sure. Fact is, Las Vegas has long benefited from an underground, untaxed cash economy that’s circulated from the casinos, through the cab companies and strip clubs, bars, restaurants and throughout the rest of the community. To a lot of local working stiffs who live by the Vegas Rules, Camacho is speaking a very foreign language.

In recent weeks, the IRS held similar meetings with strip club managers. The clubs spend millions in cash each year on limousine and taxi drivers to deliver customers. The drivers, in turn, commonly kick cash to casino door personnel.

What’s the big deal with customers dumping their bankrolls at the nightclubs?

For starters: The money is often the proceeds of drug dealing, prostitution, and mortgage and investment fraud. Although the vast majority of customers are lawful, credit card-carrying citizens just out for a good time and a $500 bottle of vodka, the nightclubs are also where 21st Century Ponzis go to party.

"That investment fraudster, his victim could be your grandmother, your parents, your relatives, your neighbors," Camacho said. "When they come to Las Vegas and spend thousands of dollars in cash, that’s money laundering. That’s why you need to do it. That’s doing the right thing."

The right thing includes encouraging club management to have big cash customers fill out Currency Transaction Reports for bills in excess of $10,000.

The catch is, that’s $10,000 over the course of a whole year.

The irony of a nightclub located inside a casino encouraging big cash spenders is this: Gaming establishments are mandated to begin logging cash customer play at the $3,000 level. Not so in the nightclubs, which fall into a different category.

"This has nothing to do with trying to take down these clubs," Camacho said.  "Every year they get bigger and bigger. When you can spend $5,000 on a pool cabana and $1,000 for a bottle (of liquor), do the math. It’s not out of the realm of possibility that somebody would dump over $10,000 in currency. Charge cards are fine. People who want to spend a lot of money in Vegas legitimately, hey, I live in the community, I like that."

Changing the Vegas Rules won’t be easy.

But if Camacho is successful, one day soon unreported cash will no longer be king in the club scene.

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.

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