November 4, 2011
DENVER MADAM SENTENCED FOR TAX EVASION
DENVER – Brenda L. Stewart, age 36, of Denver, Colorado, was sentenced this morning by U.S. District Court Judge Marcia S. Krieger to time served, followed by two years of supervised release, with the condition that the first year be served in home detention with electronic monitoring for tax evasion in connection with income derived from her prostitution business, United States Attorney John Walsh and Internal Revenue Service – Criminal Investigation Special Agent in Charge Sean Sowards announced. Judge Krieger also ordered Stewart to pay restitution totaling $61,489 to the IRS.
Stewart was indicted by a federal grand jury in Denver on November 17, 2010. She pled guilty on July 6, 2011. Stewart was sentenced today, November 7, 2011.
According to the plea agreement, in approximately May of 2005 Stewart agreed to purchase a prostitution business in which she was employed, known as Denver Sugar and Denver Players. She purchased the business from Scottie Ewing. Stewart agreed to pay Ewing $150,000 for the business. Stewart further agreed to make these payments in cash at the request of Ewing.
Also in May 2005 Stewart created an entity called Phoenix Media and Consulting, LLC. This entity performed no media or consulting work. Instead, it was used as a front company to conduct the prostitution business operations, including credit card transactions, making payments and making purchases. The defendant also used Phoenix Media as a means to hide the source and true amount of her income from the IRS.
From approximately May 2005 through January 2008, while operating Denver Sugar and Denver Players, Stewart employed a number of prostitutes, in violation of state law. Customers who paid in cash were charged approximately $300/hour, which customers who paid with credit cards were charged approximately $350/hour. Stewart received approximately one-third of these fees, and the individual prostitutes received approximately two-thirds. Further, Stewart made all of the management decisions for the two companies, including hiring and firing decisions.
Stewart also did not provide the majority of the employees with Forms 1099 or other required tax documents. Stewart filed a false 1040 individual income tax return for 2005 and she failed to file an individual tax return for 2006. She worked mostly with cash knowing that it was difficult for the IRS to track. She intentionally failed to report such income to the IRS.
Stewart’s business was conducted through a number of interstate wire transactions in the form of credit card payments which were processed through several different processing centers, all of which were outside of Colorado. Stewart and her employees also arranged appointments and conducted other business using e-mail accounts. Servers for both of these email services were located outside of Colorado.
“No matter the source of the income, those who earn money must pay income tax,” said U.S. Attorney John Walsh. “Those who attempt to hide their income to evade paying taxes, like Ms. Stewart did, should know you can be arrested, prosecuted, and incarcerated.
“All income is taxable, regardless of the source,” said Sean P. Sowards, Special Agent in Charge, IRS Criminal Investigation, Denver Field Office. “The prosecution of individuals who intentionally conceal income and evade taxes is a vital element of the IRS' enforcement strategy. We are pleased with the resolution of this investigation due to the cooperative efforts of our law enforcement partner – the Denver Police Department.”
This case was investigated by the Internal Revenue Service – Criminal Investigation with assistance from the Denver Police Department.
The defendant was prosecuted by Assistant United States Attorney Matthew Kirsch
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