A Duluth souvenir and T-shirt shop owner has pleaded guilty to a federal tax evasion charge for concealing sales and misusing cash funds to avoid the payment of more than $600,000.
Shimon Shaked, who has owned several stores in Canal Park and Michigan, entered the plea before Chief Judge John Tunheim in U.S. District Court in Duluth on Wednesday.
Authorities said Shaked, 57, "evaded the assessment of taxes on the income he earned" by failing to report most cash transactions at the shops.
"To further conceal his income, Shaked used the cash from the unreported cash sales to pay for personal expenses and to pay some of his employees' overtime wages in cash," a statement from the U.S. Attorney's Office said. "In doing so, Shaked failed to account for and pay over to the IRS some or all of the required federal payroll taxes due and owing for those employees."
In total, the scheme was alleged to have allowed him to avoid payment of approximately $620,362 in taxes.
According to court documents, Shaked has owned stores called I Love Duluth, I Love Duluth 2, Up North-The Good Life and the Lake Life, all under a holding company formed in 2012 named ALMS18, LLC. In addition, he opened two more souvenir stores in Michigan — I Love Marquette and I Love Frankenmuth — from 2017-18.
"Although Shaked owned, operated, and controlled ALMS18, LLC, he listed his teenage daughter as the nominal owner in order to hide and evade taxes on income he received from the company," the federal prosecutors said.
An indictment returned in August 2020 charged Shaked with 20 tax-related crimes. The document alleged he used the company's finances to fund personal expenses such as child support, an apartment in Duluth, personal loans and costs related to an attempt to open an alligator farm in Florida.
Authorities said Shaked failed to report more than $4 million in income from 2013-18 and evaded paying over $800,000 in federal income taxes. He instead reported the revenue and income on his daughter's returns, the indictment said.
In his hiring of international students at stores in both states, authorities said Shaked also failed to pay some or all of his federal payroll taxes. He would pay these staff members in cash, resulting in a lack of reporting and payment to the IRS.
Shaked had been set to stand trial in Duluth this week after Judge Tunheim rejected a motion for a change of venue. Defense attorney Marsh Halberg claimed his client, who is Jewish, could not receive a fair trial locally due to news coverage and perceived anti-Semitism in the community, suggesting a move to the "much more diverse" Minneapolis.
The precise terms of Shaked's plea agreement were not disclosed by the U.S. Attorney's Office or listed on the court's docket as of late Wednesday. The prosecutors said he is expected to face sentencing Feb. 15.
Shaked's stores have made headlines before, including an incident involving a racist T-shirt for sale in the I Love Duluth shop in 2009. The business removed the shirt after a photo of the shirt was shared widely online, prompting backlash.
Another controversy erupted under similar circumstances in 2017, this time involving a crude message directed at immigrants.