Bar Owners Plead Guilty to Tax Charge for Not Reporting Cash Skim from Gambling Machines

MADISON, WIS. – Scott C. Blader, United States Attorney for the Western District of Wisconsin, announced that Dudley Hellenbrand, 67, and Cherie Hellenbrand, 45, both of Middleton, Wisconsin, pleaded guilty today in U.S. District Court in Madison, Wisconsin to filing a false 2017 U.S. Individual Income Tax Return, Form 1040 with the IRS, that underreported their adjusted gross income.

According to the information filed by the U.S. Attorney’s Office, the Hellenbrands owned and operated Middleton Sports Bowl (MSB), in Middleton, Wisconsin since 1997.  The defendants contracted with a video gambling machine (“VGM”) vendor to have VGMs placed at MSB.  The defendants split the profits generated by the VGMs with the vendor, with the defendants most recently receiving 75% of the VGM profits, and the vendor receiving the remaining 25%.  According to the information, the defendants were required to report as income on their state and federal income tax returns, their share of the VGM profits, and pay income taxes on these profits.  The VGM vendor was required to report on their state and federal income tax returns, their share of the VGM profits, and pay income taxes on these profits.  The VGM vendor was also required to report 100% of the VGM gross receipts on their state sales tax returns, and pay sales taxes on the gross receipts.

At today’s plea hearing, both defendants admitted that they skimmed the VGM cash receipts and did not report the skimmed receipts on their state and federal income tax returns.  The tax loss from the skim for both state and federal income taxes for the years 2010-2017 totaled $268,852.04.

The government proffered at today’s hearing that the investigation involved an IRS Criminal Investigations Special Agent working as an undercover agent and posing as a buyer of MSB, which had been listed for sale by the defendants in late 2017.  According to the government, the undercover agent met with the defendants and the VGM vendors at MSB on May 31, 2018.  At that meeting, the defendants admitted to the undercover agent that they skimmed the cash receipts from the VGMs and did not report the skim on their tax returns.  The defendants told the undercover agent they stored the skimmed VGM cash receipts at a safe in their home and used the cash to pay for various things, including a car, spending money for vacation, $40,000 in landscaping, and cash wages to some of their employees.  One of the VGM vendors told the undercover agent that he prepared false collection tickets that underreported the true gross receipts and profits generated from the VGMs, and stated “you got to steal in this business or you ain’t going to make any money.”

Sentencing for both defendants is set for October 3, 2019, at 1:00 p.m. before Chief U.S. District Judge James D. Peterson at the U.S. Courthouse in Madison.

The charges against these defendants are the result of an investigation conducted by IRS Criminal Investigation and the Wisconsin Department of Revenue, Office of Criminal Investigation.  The prosecution of this case is being handled by Assistant U.S. Attorney Daniel Graber and Special Assistant U.S. Attorney Chadwick Elgersma.

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