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Late night noise turns into tax fraud investigation

Small businesses can be incorporated or unincorporated. A bar or nightclub could operate as a C corporation, S corporation, Limited Liability Partnership or sole proprietorship. Even so, there are certain types of taxes that must be paid, no matter whether or not the business is incorporated. Failure to pay taxes can land someone in a lot of trouble. One only needs to recall that Al Capone spent his last years in jail not for murder, but for tax evasion.

Recently it was reported that Minneapolis has been cracking down on late night crime including noise, drunkenness, rowdy behavior, bar fights and assaults. As part of that effort, the city and the state have been taking a closer look at some of the nightclubs that seem to be the center of the late night activity. As a result, one of those nightclubs has been raided on suspicion of tax fraud.

The nightclub, Envy, is located on 1st Avenue in the Warehouse district. Its website boasts that it is "Twin Cities nightlife - Vegas style!" According to news reports, Envy and its neighbor Bootleggers have been the center of scrutiny which resulted in a raid.

The raid on Envy was apparently at the request of the Minnesota Department of Revenue. The state taxation authority stated that the couple that owns Envy claimed little to no income in 2009 and did not file tax returns in 2010 and 2011. A search warrant was issued charging that the owners were skimming money from the till and grossly underreporting withholding taxes by paying employees in cash. The department also noted that the owners have a 2011 Cadillac Escalade, which does not support the concept of little to no income.

The search warrant was executed and authorities seized computers, phones and financial records plus cash found in two safes. The Department of Revenue's initial calculation is that about $60,000 may be owed to the state.

Bootleggers and Envy have both surrendered their liquor licenses. At this point, no charges have been filed in the tax fraud investigation.

Source: Star Tribune, "State raids Envy nightclub in tax fraud investigation," Eric Roper, Sept. 1, 2012

At our Minneapolis law firm we represent clients with the full range of federal and state tax issues including disputes with the Minnesota Department of Revenue such as those facing the owners of this nightclub.

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