The owners of two separate Portland-area strip club chains are under criminal investigation by the IRS for allegedly concealing income from tax collectors, according to court documents.
On April 11, the IRS asked a federal judge's permission to raid four Dolphin and Cabaret strip club locations. The move came after owners David Kiraz and Dean MacBale allegedly told two different undercover agents that they each hid from the feds more than a million dollars flowing through their clubs.
Documents filed at U.S. District Court in Portland show searches were carried out April 12 at the Dolphin I in Milwaukie and Dolphin II in Beaverton, and April 13 at Cabaret in downtown Portland and Cabaret 2 in Gresham. Searches were also carried out at MacBale's house in West Linn and Kiraz's home in Happy Valley.
MacBale's Dolphin clubs, where private VIP sessions in a couch-lined room cost as much as $500 an hour, have a relatively glitzy reputation by local strip-club standards. Kiraz's downtown Cabaret location—one of two Cabaret locations searched—often hosts spillover crowds from Old Town's meat-market bars gawking at caged dancers.
IRS agents claim they found more seediness afoot in the clubs' finances.
"MacBale's businesses are permeated with fraud," writes IRS Special Agent Maranda Nelson. "Per MacBale's admissions, he is causing his businesses to substantially underreport their gross receipts by skimming cash. The excess cash is skimmed by MacBale and used for his own personal benefit."
MacBale and Kiraz did not return phone messages seeking comment. Neither man has been charged with a crime, and IRS spokesman Dan Wardlaw declined to comment. The affidavit did not describe how MacBale personally benefited.
Search-warrant affidavits outline separate undercover criminal investigations against MacBale and Kiraz, who are both suspected of filing false tax returns—a felony punishable by a maximum $250,000 fine and up to three years in prison. MacBale is also suspected of felony tax evasion, which carries up to five years in prison, according to an affidavit.
Striking details from both investigations are laid out in the search-warrant affidavits filed by IRS special agents.
According to her affidavit, Special Agent Nelson took a hidden camera to a meeting with MacBale at Dolphin II on June 22, 2010. Nelson posed as a potential buyer. MacBale said the club was not listed on the market, but he "would sell for the right price," the affidavit says.
When Nelson asked how much money the club makes, MacBale said he brings in about $600,000 a year in cash but claimed only around $250,000 each year from 2005 to 2009, the affidavit says.
"In this business there is a lot of cash, so if I show you on paper, it's not gonna be the same worth as what the papers say," MacBale told Nelson, according to the affidavit. "It's strictly profit—$50,000 a month."
MacBale broke down his revenue streams, the affidavit says. He said he collected about $5,000 a month in ATM fees, about $10,000 for video poker, and about $35,000 a month from cover charges, the VIP room and stage fees the dancers pay the club before working each shift, the court documents say.
MacBale told Nelson he destroys the true records of his cash income every 30 days, according to the affidavit. But alcohol sales—which are subject to state oversight—are strictly "on the books," MacBale allegedly said.
MacBale also said he claims substantial write-offs, the affidavit says. That list includes suits, travel, health insurance, car payments and restaurant meals. "It's like everybody that doesn't want to pay so much taxes," MacBale said, according to the affidavit.
The IRS went so far as to slap a GPS tracker on MacBale's Toyota Tacoma to follow his movements between his different businesses. Meanwhile, the agency was also looking into Kiraz's activities at Cabaret.
According to a second affidavit, Special Agent Clint Kindred also posed as a potential buyer and met with Kiraz in August 2010. Kiraz told Kindred receipts from Cabaret and Cabaret 2 totaled a little more than $2 million each year from 2007 to 2009, the affidavit says.
Kindred pulled Kiraz's tax returns and found he had allegedly failed to report between $334,000 and $461,000 each year from 2007 to 2009, according to the affidavit.
Kindred also rifled through the trash outside Kiraz's house in Happy Valley, finding dancer applications, bartender résumés, sales spreadsheets and other business records, the affidavit says.
"I know from my training and experience that strip clubs deal heavily in currency," Kindred wrote. "The investigation has revealed that Kiraz is likely filing false tax returns with the Internal Revenue Service by substantially underreporting his gross receipts earned from the business.â