Canada-born Jack Sullivan, né John D. Scarlett, had co-owned and run the Bank Club for two decades and prior to that, the Willows (it burned down in 1932) — both Reno, Nevada casino hotspots. He’d retired a mere six months before his death at age 72. He passed away on April 24, 1951 in a local hospital after a prolonged illness.

He left behind an estate valued at $844,952.00 (about $8 million today) and comprised of these assets:

TYPE	AMOUNT	BREAKDOWN
Cash:	$431,165.85
		$202,951.49 in a commercial account at Security National Bank
		$191,148.00 in a safety deposit box at First National Bank of Nevada
		$20,624.40 at the Bank Club
		$12,381.96 in a business account at a different FNB branch
		$4,060.00 in interest and dividends on investments
Bonds:	$245,893.45
Stocks:	$104,662.70
Loan Balance:	$25,000.00	(Amount due on loan he'd made to the Cal-Neva Lodge in 1948)
Miscellaneous:	$21,380.00
		$10,000.00 Diamond ring, 7 carat
		$4,500.00 Cadillac
		$6,880.00 Other
Real Estate:	$16,850.00
TOTAL:	$844,952.00

Post Mortem Withdrawals

The executor of Sullivan/Scarlett’s estate, First National Bank of Nevada, paid the federal taxes due, which amounted to $121,442.82. This reduced the estate value by 14 percent, to $723,509.18.

Then they paid the legal fees for the settling the estate, which totaled $65,307.16:

$42,619.40 went to Woodburn, Forman and Woodburn, the executor’s counsel
$17,187.76 went to FNB as a statutory commission
$3,500.00 went to Joseph P. Haller, the widow’s attorney
$2,000.00 went to McCarran, Rice, Wedge and Blakey, the heirs’ law firm

These expenses further reduced the estate’s value, by 9 percent.

What remained of Sullivan/Scarlett’s estate was $658,202.02 (about $6.3 million today).

Distribution Of Wealth

Sullivan/Scarlett left a will, which had been created in 1948, three years before his passing. He’d bequeathed the following:

To his widow: Half of all community property and the remainder of the estate after the other commitments were paid; the latter came to about $130,000.

To his daughter: $200,000. Held in a trust, the money was to be invested in U.S. government bonds and she was to be paid $400 a month from the investment returns until age 50. At that time, the trust was to be liquidated and the principal paid to her. 

In the event of her passing, the money was to be distributed equally to Sullivan/Scarlett’s three grandchildren once the eldest reached aged 21.

To his four sisters: $10,000 each.

Scarlett had left nothing to his brother, noting in the will that he’d provided for him when Sullivan/Scarlett was alive.

By year’s end, the gambler’s estate had been disbursed.

Sources

Photo from the University of Nevada, Reno Special Collections

1952

When Ernest J. Primm owned the Monterey Club, a poker house in Gardena, California (a Los Angeles suburb), he claimed on his state income taxes the losses of his shills, up to $500 ($4,500 today) a month, as expenses or losses — illegitimate deductions.

Seven years later, it caught up with him. The state’s Franchise Tax Board assessed him $1,589 ($13,000 today) for that year when his enterprise grossed $1.3 million ($11.7 million today).

(Primm also owned the Embassy Club and Rainbow Club in Gardena and Club Primadonna in Reno, Nevada.)

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

1976

The Ninth U.S. Court of Appeals in San Francisco, California ruled any tips, or tokes, that individuals give to casino dealers is a form of taxable income.

Photo from freeimages.com: “Batch of Dollars” by Alexander Kalina

El Rancho in Las Vegas, Nevada in the 1950s

1956

When auditors for Nevada reviewed its books, they discovered the El Rancho casino on the Las Vegas Strip had underpaid the requisite gambling taxes over nine quarters by $39,000 ($350,500 today).

Despite the claims of owners Beldon Katleman, et. al. that they believed they’d paid the proper amount, tax commissioners assessed a 100% penalty, the largest ever in Silver State history up to that date.

Rather than fight the issue, the El Rancho forked over the tax and the fine, $78,000 ($701,000 today).

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