Earl Warren (front center) and the rest of the U.S. Supreme Court justices, 1967

1952-1968

Soon after two new federal taxes — the tax on wagers and the wagering occupational tax — went into effect in late 1951, problems with them arose. (See Part I for a description of and impetus behind the taxes.)

First Complication To Arise

The constitutionality of the occupational tax was called into question. In May 1952 U.S. District Court Judge George A. Welsh flat out declared it federal legislators’ unconstitutional infringement on states’ power and described it as “a police measure enacted by Congress under the guise of a tax bill” (Reno Evening Gazette, May 6, 1952). This ruling came during the trial of a Philadelphia gambler charged with failure to buy the gambling tax stamp.

An editorial in Florida’s Tampa Times pointed out the gambling stamp tax was “contradictory” and “hypocritical” (March 3, 1953).

“It is a case of the federal government on one hand sanctioning gambling, while state and local law enforcement officers are expected to stamp out gambling,” it read. “Winking at gambling because it has become a federal tax revenue producer would be outright hypocritical and against the wishes of the majority of Americans.”

Other critics argued the tax violated wager-takers’ Fifth Amendment right to protection from self-incrimination. On one hand, requiring them to register forced them to provide information that could implicate them in breaking their state’s state anti-gambling law, were that in fact the case, and in doing so, invite prosecution.  Many newspapers, including The Sacramento Bee and The Indianapolis News, published the names of stamp purchasers.

On the other hand, if the wager-takers ignored the federal law, to keep their underground gambling operation secret, they risked federal prosecution for not buying the stamp and registering.

Not So Effective

A second issue was the taxes weren’t achieving the desired ends. A year in, they hadn’t significantly reduced gambling; at best, they’d slightly deterred it. They hadn’t forced gamblers out of business; instead, the operators had gone underground.

The taxes also failed to bring in anywhere near the level of revenue expected. Congress had predicted an influx of about $400 million in the first year, but the actual figure was about $9 million, not even one-third of the predicted amount.

Whereas a flurry of stamp tax buying had occurred after the Revenue Act was passed, taking total sales to over 19,000, purchases dramatically fell off in 1952.

“The professional gamblers soon wised up and developed a ‘wait and see’ attitude,” reported The Tampa Times.

The reasons for the suboptimal results, according to Frank Lohn, chief of the Internal Revenue Bureau’s intelligence division, were that the bureau lacked sufficient staff to go after unpaid gambling taxes and that the constitutionality of the special tax remained undecided.

“Many gamblers believe the high court will overturn the law, and in the meantime they are not too afraid of violating it,” reported the United Press (Reno Evening Gazette, Nov. 1, 1952).

High Court Weighs In … Twice

That was not the case, however; the U.S. Supreme Court upheld the special tax, 6 to 3, in March 1953. About a year later, it ruled that purchasing a wagering stamp tax did not make the buyer immune from possible state prosecution, thus the self-incrimination problem persisted.

Fast forward 14 years to 1967. Significantly fewer gamblers nationwide were buying a tax stamp, 5,917 in that year, for example. About 2,000 gambling tax violation cases were advancing through the courts.

Then in January 1968, in another twist, the Supreme Court, in a 7-to-1 decision, ruled that the stamp tax law violated people’s Fifth Amendment right, but the justices didn’t declare it unconstitutional. Instead, they essentially gave wage-takers a way to avoid prosecution for noncompliance: claim self-incrimination.

The sole dissenter, Chief Justice Earl Warren, said the decision made the law unenforceable and unconstitutional. Justice and treasury department officials predicted it would hamper crimefighting at the federal, state and local levels and jeopardize current prosecutions.

Fix For The Problem

In 1974, Congress passed Public Law 93-499 to replace the two wagering taxes mandated in 1951. The new statute required certain gamblers to buy a $500 (about $2,800 today) wagering tax stamp annually and pay 2 percent on all bets they take. December 1, 1974 was the effective date, and the Bureau of Alcohol, Tobacco and Firearms was tasked with enforcement.

This law avoided the Fifth Amendment issues inherent in the previous one. It did so by prohibiting the federal government from divulging, to any law enforcement agency, private group or citizen, the information gamblers gave, as required, about themselves, their partners, employees and customers.

Types of gambling exempt from the new law were casino betting, state-licensed parimutuel wagering, state lotteries and coin-operated machines on which a stamp tax was charged. 

As with the prior wagering taxes, the purpose of Public Law 93-499 was to “increase federal revenues and curtail an important source for financing criminal activities” — certain types of gambling, reported The Sun-Telegram (Jan. 19, 1975).

Part I

Sources

1951

Gambling is the lifeblood of organized crime.

This was U.S. Senator Estes Kefauver’s conclusion after the Special Committee on Organized Crime in Interstate Commerce, which he headed, concluded its investigation.

The Kefauver Committee’s work, in part, involved conducting hearings in 14 U.S. cities, during which they grilled (sometimes, unsuccessfully) about 600 witnesses, including big-time Mobsters, some of their associates and officials knowledgeable about Mob activity. The 15-month query shone a spotlight on gambling taking place at the time and for years before, most of it illegal, prohibited by law in most states.

The hearings were televised, and Americans tuned in, rapt. The broadcasts opened their eyes to the who, what,  where, when and how of gambling and other organized crime happening all around them. By March 1951, 72 percent of U.S. residents were familiar with the Kefauver committee and what it was doing.

Crackdown On Some Gamblers

As a result of the Senate committee’s findings, Kefauver recommended the federal government impose a 10 percent tax on all gambling. At the same time, U.S. residents, facing a likely federal personal income tax increase, expressed dissatisfaction at gambling operators (gamblers) paying little or no taxes on the loads of cash they made.

These two factors in large part pressured Congress to act, and it did in 1951 but not to the extent Kefauver had suggested. It imposed two taxes* on a subset of gamblers, individuals who received bets from people — bookmakers, numbers writers, and punch board and lottery operators.

The goal was to force these people to pay heavy taxes or go out of business, and in doing so, shrink the  gambling industry nationwide and generate a good chunk of revenue for the U.S.

Trio Of Mandates

One of the new federal levies, called the tax on wagers, was 10 percent of all gross receipts.

The other was an occupational tax, often referred to as the gambling stamp tax. It required wager takers to buy a special tax stamp every year by December 1 and display it in their place of business or, for those without such a location, on their person. The stamp cost $50 (about $525 today).

Anyone required to pay the special tax also had to register with the local Internal Revenue Bureau (IRB) collector and provide their name, home and business addresses and the name and home address of their partners, employees and clients. Once the bureau received the information, it provided a copy to local law enforcement officials and maintained its own public list of all gambling stamp purchasers.

These wagering-related taxes went into effect on November 1, 1951.

Failure To Comply

The penalty for not purchasing the $50 tax stamp was a fine of at least $1,000 ($10,300 today) but not higher than $5,000 ($51,500 today).

Gamblers who had a stamp but didn’t display it were fined, $50 for those who’d forgotten to do so and $100 for those who outright refused to do so.

Providing false information on the relevant forms was punishable by up to $10,000 in fines and five years of imprisonment.

Regarding the 10 percent tax on wagers, IRB Commissioner John B. Dunlap told the United Press that “cases of willful evasion or attempt to defeat the tax will be promptly referred to the department of justice with recommendation for criminal prosecution” (Nevada State Journal, Dec. 5, 1951).

Early Stamp Numbers

By the first deadline, December 1, 1951, a total of 7,706 gamblers had applied for the federal gambling tax stamp. The state of Washington submitted the most applications, at 1,412. Next was Montana, with 902. Nevada, where gambling was legal and wide open, accounted for only 33 applications.

It wasn’t long before problems with these latest federal taxes arose.

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Look for Part II next week.

* Congress enacted the two taxes on wage takers through the Revenue Act of 1951, which also temporarily raised federal individual income and federal corporate taxes.

Sources

The colorful career of San Francisco-born Joseph Zemansky (1877-1953) spanned three industries and two countries. After childhood in Sacramento, he spent several decades in California before settling in Nevada.

Here are 10 highlights of Zemansky’s professional life and experiences:

Gambling

1) Zemansky helped establish and operate the immensely popular Agua Caliente Casino and Hotel in Tijuana, Mexico, which opened in June 1928. Along with four others, he was part of the Mexican Development Co., the group behind the resort and initial owners of its gambling concession.

2) Zemansky and his Mexican Development Co. partners came under Internal Revenue Bureau (IRB) scrutiny in 1930 for not reporting for tax purposes their share of $550,000 ($8.9 million today) that the group’s head Wirt Bowman divvied between them. The likely skimmed money had come from Bowman’s records-less Agua Caliente “concession fund,” or bribe fund more accurately. When tax men questioned the quartet, three denied ever receiving any money, and the other two, Zemansky included, claimed they’d only borrowed money from the fund. Lacking proof, the IRB dropped the issue.

3) Zemansky had dealings with the Mafia. He and his brother-in-law Barney Morris opened a bingo club in 1934 in Kansas City, Missouri called Club Fortune. The two owned half, and the Kansas City Combine boss John Lazia owned the other half.

4) The Mob allegedly victimized Zemansky. When Lazia was murdered, his successor, Charles Carrollo, assumed Lazia’s 50 percent of Club Fortune. Then in 1938, Carrollo forced Zemansky and Morris to sell him their half for a ridiculous price, $1 according to one report, $10,000 according to another. (The club generated about $60,000 a month, about $1.1 million today!) The transaction took place, but Zemansky asserted Carrollo hadn’t coerced him and Morris into it and the deal had been profitable.

5) Zemansky debuted another Club Fortune in 1937, this one a nightclub in Reno, Nevada with a casino, cocktail lounge and entertainment, which became known for its large, tango offering. After a successful, 10-year run, Zemansky closed the business in 1947 when the property lease expired.

“At the time it was the outstanding night spot in Western Nevada, featuring an unusual decorative theme of potted palms,” wrote the Reno Evening Gazette (Jan. 12, 1953).

Other Business

6) Zemansky’s other businesses included: Diamond Palace, a pawn shop and jewelry store he and his brothers ran for years, and the House of Props, which rented furnishings, sets and objects to movie studios and theater companies, both in Los Angeles, as well as Heaney’s Jewelry & Loan Co. in Reno, co-owned with George Heaney.

7) Zemansky discovered and, for several years, managed boxer Jack Johnson who went on to become a world heavyweight champion.

Crime

8) Zemansky was robbed twice at his Los Angeles home, in 1933 and 1934. The second time, two masked gunmen bound Zemansky, his wife and nephew with neckties, made Zemansky open the vault and stole $5,000 ($100,000 today) in jewels and $200 ($4,000) in cash.

9) Zemansky was arrested in Reno in August 1945 for leaving open Club Fortune’s basement door, thereby violating a city ordinance. His punishment was a $10 ($150 today) fine.

10) Zemansky passed away from a heart attack at age 75 on January 12, 1953. He was in San Bernardino at the time with his wife, visiting her sister on their way to Palm Springs.

Do you have any additional information about Zemansky to share? 

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Sources

1944 stock certificate signed by Pat Mooney

1940-1953

In 1946, Pat Mooney, chief field deputy of the Nevada Internal Revenue (IR) Bureau office, made gambler-Mobster Elmer “Bones” F. Remmer* an offer he couldn’t refuse.

If the gambling club owner purchased $52,400 ($699,000 today) worth of shares in the Mountain City Consolidated Copper Co. (MCCCC) then his 1945 federal tax debt in that same amount would be erased and prosecution avoided. Mooney would prepare Remmer’s tax return to ensure that be the case.

The Bay Area-based racketeer accepted. Remmer paid $2,400 ($32,000 today) for 6,000 shares at $0.40 apiece.

Like him, hundreds of other California and Nevada and business people, including convicted abortionist Gertrude Jenkins of San Francisco, took a similar deal over the previous handful of years. Here are some of The Silver State gamblers who did so between July 1943 and May 1946 and what they paid:

These and all of the other people who bought MCCCC stock had tax problems that disappeared subsequently.

Mining Misrepresentations

Along with Mooney, the key perpetrators of the scam were Ernest M. Schino, chief field deputy for the tax bureau in Northern California, and Martin Hartmann, an ex-con turned MCCCCC sales agent. They told prospective shareholders that the corporation owned a reputable, producing copper mine sitting on valuable property that included 14 mining claims, a mill site and water rights. They touted the fact that the land adjoined that of the producing Rio Tinto copper mine in Nevada’s Elko County, owned by Anaconda subsidiary Mountain City Copper Co., a different entity from MCCCC. 

In reality, MCCCC didn’t have a working mine. The company had no value, and, thus, the stock was worthless. The property was nothing more than “a rathole in Nevada,” Frank Dwyer of the San Francisco Stock Exchange told the San Francisco Examiner (Aug. 29, 1950).

Mooney founded and incorporated MCCCC in 1937, allegedly spent $137,000 on some work there, including a geophysical survey of the land and some underground work in 1944, but that was all. By 1950, MCCCC had about 600 shareholders, a major one being Robert L. Douglass, an IR collector in Nevada.

Compounding The Crime

As promised, Mooney calculated and filled out Remmer’s tax returns not just for 1945 but for all of the five years between 1942 and 1947, a violation of IR regulations. Specifically, the bureau’s employees were prohibited from doing any work that could affect a person’s tax liability and/or from moonlighting in any capacity in which their personal and professional interests would conflict.

Scandal Sees Sunlight

In early 1950, the San Francisco Examiner exposed the IR scheme and the workers involved. Subsequently, William A. Burkett testified before Senator Estes Kefauver’s United States Senate Special Committee to Investigate Crime in Interstate Commerce in San Francisco in November 1950, telling them what he knew about it.  He previously quit his position as the IR intelligence chief for Northern California after his department ignored his reports on the MCCCC stock extortion in what he alleged was a coverup.

“The Internal Revenue office hearing [before the Kefauver Committee] showed … that established law enforcement and investigative officers were in many cases the exploiters rather than the exploited in their relationships with the underworld,” William Howard Moore wrote in The Kefauver Committee and the Politics of Crime, 1950-1952.

Probe, Legal Action Ensue

After an investigation by East Coast U.S. Treasury agents into related tax cases going back to 1940, the federal government pursued a lawsuit against Mooney, Schino and Hartmann for a single extortion case, the one involving Jenkins, the abortionist, who purchased $5,000 worth of MCCCC shares. By this time, Mooney was 81 and retired, Schino was 55 and fired. Hartmann was 63.

A federal grand jury indicted the trio for attempting to defraud the U.S. government by attempting to obstruct the IR bureau’s prosecution of Jenkins for income tax evasion.

Ralph Read, head of the IR bureau’s intelligence unit in San Francisco, said that his team, after investigating the Jenkins case years earlier, concluded “there was nothing involving any Internal Revenue personnel” and “there was nothing in the nature of solicitation of a bribe or any act to influence an Internal Revenue officer” (San Francisco Examiner, Aug. 30, 1950).

In early 1952, federal prosecutors tried Mooney, Schino and Hartmann together. A jury found all three guilty.

Schino and Hartmann appealed the ruling, but in December 1953, the Ninth U S. Circuit Court of Appeals upheld it. Schino’s sentence was two years in prison, Hartmann’s was two years in prison plus a $5,000 ($49,000 today) fine. Mooney got two years’ probation and a $5,000 fine.

As for gambler-Mobster Remmer, he later was convicted of federal tax evasion and sentenced to a $20,000 ($194,000 today) fine and five years prison, of which he served 2.5.

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* Remmer’s gambling houses included the Cal-Neva Lodge at Lake Tahoe in Crystal Bay, Nevada; and in California, the Menlo Club, 110 Eddy and B&R Smokeshop in San Francisco; the 21 in El Cerrito; and the Oaks Club in Emeryville.

Sources

U.S. FBI seal

1970-1975

In a massive, coordinated effort, federal agents raided illegal bookmaking operations throughout the U.S. with ties to organized crime.

On December 12, 1970, Federal Bureau of Investigation (FBI) and Internal Revenue Service (IRS) agents struck in 11 states and 26 cities, including Las Vegas, Los Angeles, New York, Detroit, Miami Beach, six in Ohio and five in Georgia. The feds served 160 search warrants and made 27 arrests.

Mobsters Wanted

In Nevada, the Feds targeted Caesars Palace and the Rose Bowl Sports Book in Sin City. The following men were arrested, among others, for allegedly running an illegal sports book, in connection with the nation’s top bookmakers, between Palm Springs, California and Las Vegas. They were charged with violating interstate gambling laws.

• Frank “Lefty” Rosenthal, Rose Bowl Sports Book manager and alleged Chicago Outfit member

• Jerome Zarowitz, former Caesars Palace casino manager and reputed mob associate in partnership with the New York Genovese and Boston Patriarca crime families

• Elliot Paul Price, Caesars Palace casino host and alleged Patriarca crime family associate

• Sanford Waterman, executive vice president of Caesars Palace

When FBI agents raided Caesars Palace, they seized about $1.6 million in $100 bills (about $9.9 million today), mostly from Zarowitz’s lockboxes kept at the casino, the rest from those of Price and Waterman.

Watertight Case … Or Not

With the defendants free on bond, a trial was set, and the defendants retained attorney Oscar Goodman to represent them.

“The case hinged on wiretap information, which solidly established the multi-state connections and the activity of the group. In short, they were dead,” Goodman said in Of Rats and Men, John L. Smith’s biography of the attorney who later became Las Vegas’ mayor.

In prepping for the case, Goodman noticed an irregularity on the wiretap authorization, that someone other than U.S. Attorney General (AG) John Mitchell had signed his name. The defense attorney later determined the assistant AG had signed for his boss, which is illegal.

On that basis, Goodman requested the court dismiss the case. It did, but an appeal followed.

Ultimately, in late 1975, District Court Judge Roger Foley ended the saga for good. He determined the federal government hadn’t exhausted all other investigative avenues before they’d resorted to bugging and that made the wiretap evidence inadmissible.  Without it, prosecutors didn’t have a case.

“Every defendant walked away without a scratch from the biggest federal assault on the national bookmaking syndicate since the Roaring ’20s,” Smith wrote in Of Rats and Men.

Sources

1964

The Dunes in Las Vegas, Nevada switched from writing off unpaid IOUs to claiming them as income, allegedly to keep Internal Revenue Service agents from harassing its customers — asking guests in the hotel if they paid what they owed.

On its fiscal 1965 income tax return, the hotel-casino reported as income $1.3 million (about $7.2 million today) in markers it considered not collectable. 

Photo from the University of Nevada, Las Vegas’ University Libraries

1945-1955

In the late 1940s, three bookies — or commissioners, as they preferred to be called — operated on Sunset Strip in West Hollywood, California under the name, Golden News Service. Hy Goldbaum, George Capri and Edward Cooke, all in their late 40s or early 50s at the time, specialized in assuming large bets that solo bookies couldn’t carry, and covering or placing them nationally with other bookmakers, which earned them the moniker, the bookie’s bookies.

The trio left California in 1949 and went to Las Vegas, Nevada, where they could ply their trade legally. Goldbaum went on to work at the Flamingo and the Stardust.

Two years later, the men became ensnared in a federal crackdown on bookmakers and were charged with income tax evasion and conspiracy, resulting from their having filed fraudulent returns. The government claimed the men together had done $6 million in business in California (about $70 million today!), but had only claimed income of $289,000 ($3.3 million today). Goldbaum also was charged individually for under-reporting his income.

They were convicted on 11 of 13 counts of tax evasion and conspiracy and sentenced to three years per count to be served concurrently.

“I’m convinced that a general conspiracy existed to defraud the laws of the United States, of Nevada and of California,” said the judge (Reno Evening Gazette, Feb. 5, 1952), but he also noted he imposed a lenient punishment because the defendants had been cooperative.

The U.S., however, wasn’t done with Goldbaum. The government filed a $1.6 million tax lien against him for past personal taxes it claimed he owed.

Time Served

After two years and five months at the McNeil Island Corrections Center, the three “commissioners” were released on $10,000 ($89,000 today) bail each, pending the outcome of their appeal to the U.S. Supreme Court. In 1955, it looked like they might catch a break when the justices ordered the lower federal court to reconsider its ruling.

But the court of appeals in California affirmed its earlier decision, making the case overall a win for the federal government.

Photo from freeimages.com: “Graphic of Abacus” by Cyndi Papia

Sources

1961

It was hot inside and outside Harolds Club in Reno, Nevada on a Wednesday afternoon in the early summer of 1961.

Indoors, people gathered around to watch high-roller Lonnie Joe Chadwick on a winning streak. In his two-day spree playing 21, he already had cashed in about $30,000 to $50,000 ($239,000 to $398,000 today) and still had numerous $100 chips in front of him. He continued to bet the $500 limit at each of the gaming table’s seven spots.

Suddenly, Internal Revenue Service (IRS) agents appeared, interrupted Chadwick’s gambling rush and confiscated his more than $18,000 in chips!

Previously, they’d informed him that the federal government had “closed out his taxable year as of that time and the chips on the table were under levy for payment of taxes for the period” (Nevada State Journal, June 10, 1961) and had given him three-and-a-half months to file a return — which he hadn’t done.

“I’ll sue,” Chadwick said.

Although unusual, IRS representatives had made this move in the past in a Las Vegas casino, which was legal. A federal law allowed the Treasury department to declare the end to a person’s tax year when it appears they may not pay their income taxes otherwise. The agency rarely invoked the law and only in special cases. It’s unclear why it had done so with Chadwick; the law banned agents from disclosing reasons to the public. The IRS, however, had notified Chadwick beforehand of the assessment against him.

Business Repercussions?

The incident sparked some casino owners to wonder:

• Can the IRS truly legally take such action?

• Do we have to honor the chips the IRS seizes?

• Could this IRS practice negatively affect my business?

• Will the high rollers gamble underground as a result?

• Will it reduce the amount in gambling taxes going to the city, state and federal governments?

“We want to allay any fears of the clubs that this is any sort of harassment,” said Dalmon Davis, the IRS director for Nevada (Nevada State Journal, June 10, 1961). “This is an isolated incident, but there is no assurance it will not occur again if the situation warrants.”

The IRS gave Chadwick another three months to file a return, which he did only minutes before the deadline.

Sources

Illustration from pond5.com: “Uncle Sam and the USA Flag” by Batareykin

1955-1956

At 9:15 a.m. on Friday, November 11, 1955, eight U.S. IRS agents entered the Club Cal-Neva in Reno, Nevada, demanding payment of $65,000 (about $600,000 today) in overdue withholding and excise taxes. When the money couldn’t be proffered, the feds wired shut the casino doors and emptied all of the tables, cashier cages and slot machines of their money. They collected about $50,000 ($463,000 today), which they applied toward the debt.

The week before, the Internal Revenue Service had seized about $23,000 ($213,000) from Club Cal-Neva Inc.’s bank accounts to satisfy a total tax burden of $88,500 ($818,000). Subsequently, the corporation filed for bankruptcy.

The entity consisted of front man Sanford Adler,* Louis Mayberg, Morris Brodsky and Charles Resnick, who’d purchased the former Club Fortune (Fordonia Building) in 1947 from James “Jim” McKay and Jack Sullivan for $250,000 ($2.8 million) and then had spent $500,000 ($5.5 million) on renovating it. They’d opened it on Nov. 20, 1948 as the Club Cal-Neva, where they’d offered 21, craps, roulette, keno and slot machines.

Following the Chapter 11 filing, James “Jim” Contratto and five other men acquired the building, physical assets and lease from Club Cal-Neva Inc. Contratto previously had owned a gambling license for the Colony and Palace Clubs in Reno. His new partners were Robert I. Franks and Al Rogell of Beverly Hills, California; Sam Levy of Douglas, Arizona; John Callas of Huntington, Park, California; and Caspar Van Citter of Reno, Nevada. The group reopened the gambling house, keeping the name Club Cal-Neva, on December 2, 1955. The casino boasted four 21 games, one craps game, one roulette wheel and one keno game along with 150 slot machines.

Replay Down South

Just over a year later, on Friday, November 30, 1956, at 8:30 a.m., 10 federal revenue agents entered the Silver Palace in Las Vegas. One announced over the loudspeaker that the 20 or so customers should leave as the casino’s assets were about to be seized. The crew padlocked the doors and confiscated all of the cash from the premises, as the gambling club owners were roughly $77,000 ($638,000) in arrears on payroll taxes.

The Spinning Wheel Corporation had invested $1.5 million ($13.7 million today) into the Silver Palace and had opened it only six months earlier, with 160 slot machines, two 21 games, two craps games and a roulette wheel. Earl Snyder, a Monterey Park, California contractor, held the majority interest. Marion B. Hicks, Joe Wells and Clifford Jones each had a gambling license for the casino.

In January 1957, IRS agents auctioned off the Silver Palace’s assets, proceeds of which reduced the casino’s tax debt to $38,500 ($340,000). The $87,700 worth of furnishings only brought in $8,745. The Westerner bought the liquor for $6,100. The Saddle Club purchased the office equipment for $1,925.

Subsequently, the Spinning Wheel Corp. put up the building for lease.

*In addition to the Club Cal-Neva, Sanford Adler owned/co-owned several casinos at various times, including the Flamingo in Las Vegas and the Tahoe Biltmore in Crystal Bay at Lake Tahoe.

Sources

1957-1960

In June 1957, a federal grand jury secretly indicted the owners of the Wagon Wheel Saloon and Gambling Hall (Harvey’s today) at Lake Tahoe in Stateline, Nevada — Harvey A. Gross, and his wife, Llewellyn — for failing to pay more than $45,400 (about $395,500 today) in joint income taxes over a three-year period.

YEAR	ACTUAL NET INCOME	FILED NET INCOME	ACTUAL TAX DUE	TAX PAID	TAX SHORTAGE
1950	$67,964.02	$26,905.53	$30,134.50	$6,558.60	$23,575.90
1951	$51,657.11	$42,755.92	$20,586.26	$15,336.88	$5,249.38
1952	$99,945.32	$77,069.60	$56,335.54	$39,742.24	$16,593.30

This wasn’t Gross’ first charge of evading taxes. Four years earlier, he’d been arrested for evading $500 ($4,600 today) in federal liquor taxes. The federal government said the former and current counts indicated a pattern of tax evasion; Gross’ attorneys described them as a series of government harassment of their client.

A Compelling Tale

The way the income tax story played out is filled with twists:

1) Three months after the indictment, Gross, age 52 at the time, sued a former bookkeeper, Lee Alvin Dorworth, and a Nevada-based Internal Revenue Service (IRS) agent, E.O. Draper. Gross alleged that Dorworth, who’d worked for him a decade earlier, had stolen from the Wagon Wheel a small notebook, a memo book and two ledger sheets containing financial casino records when Gross had fired him in July 1948 and had given them to the tax agency. In the suit, Gross asked for return of the items and $50,000 (about $435,600 today) in damages.

In December, a federal judge ruled the IRS had the right to examine and copy certain financial records allegedly taken from the business via clandestine means. Gross withdrew the lawsuit.

2) During the income tax trial, which got underway in March 1959, Gross’ lawyers presented a defense of shoddy accounting on the part of an employee (not Dorworth mentioned above).

3) At one point in the legal proceedings, Gross’ wife collapsed, supposedly from the stress of it all, and needed assistance leaving the courtroom. 

4) At the request of attorneys on both sides, Judge Sherrill Halbert declared a mistrial because the transcript of testimony supposedly was “inaccurate, incomplete and inadequate,” containing more than 200 errors and omissions (Reno Evening Gazette, March 18, 1959). A new trial date was set for September.

5) The court reporter, Marie McIntyre, who’d had the job for 14 years, told the media her transcript didn’t contain any mistakes, never mind 200 of them — a “ridiculous” claim, she said (Reno Evening Gazette, March 19, 1959). She added that the judge had told her in confidence the transcript was fine, but later, when asked whether he’d said that, he denied it.

6) In June, Gross entered a nolo contendre, or no contest, plea to the tax evasion to end the saga, which he said had made his wife terribly ill. (She would die six years later, in 1965.)

7) Whereas many casino owners have done prison time for tax evasion, Gross escaped that specific sentence. Instead, Halbert fined him $20,000 ($168,000 today), to be paid back within the next five years, put him on probation of the same duration and ordered him to pay all of his outstanding back taxes plus the court costs. As for Llewellyn, Halbert dismissed the charges against her.

“I will look with strong disfavor,” Halbert warned, “on any technical plea … to attempt to avoid adjudication. You must pay your taxes as any other citizen.” … The “sloppy bookkeeping” excuse was flimsy and wouldn’t be allowed again, he added (Reno Evening Gazette, Oct. 5, 1959).

8) In January 1960, based on Gross being “adjudged convicted” in the tax case and after the Nevada Gaming Control Board’s (NGCB) investigation, the agency recommended the gaming commissioners revoke the Wagon Wheel owner’s gambling license on the grounds he was “unsuitable” for running a casino in the state. However, in August, the ultimate arbiters, the Nevada Gaming Commission, in opposition to the NGCB’s stance, allowed Gross to keep his gambling permit.

Decades In Business

The Wagon Wheel, which the Grosses had opened in 1944, would eventually be branded Harvey’s and remain under the family’s control, even after Harvey’s death in 1983, until 2001, when the Harrah’s corporation would acquire it.

Sources