State raids Envy nightclub in tax fraud investigation

A popular nightclub blamed for contributing to late-night crime in downtown Minneapolis drew further scrutiny Friday when state officials revealed they had raided the business looking for evidence of tax fraud.

A dozen Minnesota Department of Revenue employees spent hours Thursday morning searching Envy, located on 1st Avenue N. and 4th Street, after learning the owners may be dodging tax payments. Accompanied by Minneapolis police officers, they confiscated many items, including seven cellphones, seven computers and financial records.

The club was already a focal point of City Hall's summer offensive against violence in the downtown club district.

City officials hoping to stem a spike in late-night crime threatened to revoke the liquor licenses of Envy and a nearby club, Bootleggers.

They are also pursuing an ordinance change that would give regulators additional powers over problem businesses.

It appears the party is over for the two clubs, however. Bootleggers voluntarily surrendered its license last week and a city spokesman said Envy followed suit on Thursday. Their license withdrawal is effective Nov. 12.

"This illustrates that if we have the right tools and use them, we don't have to concentrate as many police resources in one place," said Mayor R.T. Rybak. "And that can help make the whole city safer."

But the tax battle against Envy and owners James and Susan Beamon may be just beginning.

The search warrant alleges the club owners may have been skimming cash out of registers without reporting the income while also "grossly underreporting" withholding taxes by paying employees cash. A revenue agent estimated in the warrant that the state may be missing out on $40,000 to $50,000 in sales tax from admissions and food, and at least $10,000 in sales tax related to alcohol.

The Beamons reported "very low or negative" income in 2009 and did not file returns in 2010 or 2011, the warrant said. Nonetheless, investigators found a 2011 Cadillac Escalade associated with James Beamon in DMV records.

"Normally, persons with the income levels reported by the Beamons could not afford a high-priced Cadillac," the search warrant said.

No charges have been filed as investigators pore over records seized during the search. James Beamon was present and cooperated, said state Revenue Commissioner Myron Frans.

In addition to computers, phones and financial records, agents took an eviction summons they discovered on a desk, employee schedules, $940 from a Dodge Ram truck, and $2,336 from two safes in the basement.

The Beamons, who have operated Envy since August 2011, did not return a message seeking comment Friday.

"This is consistent with our mission, and that is to make sure that everyone files and pays their taxes on time and accurately," Frans said. "We're interested in that and we want to make sure that everyone pays their fair share and pays, no more or no less, what they owe."