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Former Tax Court Judge and Husband Indicted for Tax Evasion, Filing False Returns, and Impeding an Audit

(Parker Tax Publishing April 2016)

A grand jury has indicted a former Tax Court judge and her husband with filing false tax returns, tax evasion, and obstructing an IRS audit. The indictment charges that numerous personal expenses, including vacations to China, Australia and Thailand, were deducted on the business tax return of the husband's lobbying firm. U.S. v. Fackler, 2016 PTC 134 (D. Minn. 2016).

Diane Kroupa was a U.S. Tax Court judge from June of 2003 to her retirement in June of 2014. As a Tax Court judge, Kroupa heard and decided cases involving a wide variety of tax law issues, including what is required to be reported as income and what constitutes proper business deductions.

Her husband, Robert Fackler is a self-employed lobbyist and political consultant. For the years at issue, he owned and operated a Schedule C entity known as Grassroots Consulting, the income of which was included as part of his and his wife's joint tax returns for 2004-2010. Through Grassroots Consulting, Fackler provided lobbying and consulting services to three primary clients. The clients paid him as an independent contractor and reported the payments to Fackler and the IRS via Form 1099. Fackler was typically reimbursed by clients for meals, travel, and other expenses incurred in connection with services provided.

From 2004 to 2013, Fackler and Kroupa owned a house in Minnesota, where they were residents. That house was their primary residence. They also leased a second residence, a house in Easton, Maryland, where Kroupa stayed while fulfilling her duties as a Tax Court judge in Washington, D.C.

On April 4, a Minnesota grand jury indicted Fackler and Kroupa on a number of charges involving the tax returns they filed for 2009 and 2010. The indictment states that, beginning in or before 2004 and continuing at least through 2012, in Minnesota and elsewhere, the couple conspired to defraud the U.S., particularly by impairing and obstructing the ascertainment and computation of taxes. The purpose of the conspiracy, the indictment states, was to unlawfully evade the couple's tax obligations.

The indictment cites the false reporting of the following expenses as Schedule C business expenses of Grassroots Consulting:

(1) expenses associated with the couple's two homes, such as rent, utilities, internet/cable service, garbage removal, bathroom remodeling, new windows, and interior design fees;

(2) personal expenses incurred by or on behalf of the couple and/or their family members such as pilates classes, spa and massage fees, jewelry and personal clothing, wine club fees and purchases as wineries; airfare, hotel, Chinese tutoring, music lessons, personal computers, family and graduation photos, Christmas cards, household items, groceries, dry cleaning, personal cell phone charges, and other expenses for vacations to and among other locations: Alaska, Australia, Bahamas, China, England, Greece, Hawaii, Mexico, and Thailand.

According to the indictment, from 2004 through 2010, the couple fraudulently deducted at least $500,000 of personal expenses as purported Schedule C business expenses.>

The indictment also accuses the couple of giving false and misleading documents to their tax return preparer knowing and intending that the preparer would give this information to IRS auditors. The documents - including typed summaries, handwritten summaries, and cut-and-pasted credit card statements - purported to substantiate certain of the business expense deductions taken by Grassroots Consulting, which the couple allegedly knew were personal and nondeductible expenses.

Kruoupa, the indictment charges, sent an email to the couple's tax return preparer that a deposit into her bank account in the amount of approximately $44,000 in July 2010 was part of an unrelated inheritance and denied that the payment was received as a result of a land sale in South Dakota, when she allegedly knew the payment was from the land sale.

The indictment also charges that the couple prepared false and misleading documents in an attempt to impair and impede IRS audits.

In total, the indictment consists of six counts: (1) conspiracy to defraud the United States in violation of 18 U.S.C. Sec. 371; (2) tax evasion in 2009 in violation of Code Sec. 7201; (3) tax evasion in 2010 in violation of Code Sec. 7201; (4) making and subscribing a false return in 2009 in violation of Code Sec. 7206(1); (5) making and subscribing a false return in 2010 in violation of Code Sec. 7206(1); and (6) obstruction of an IRS audit in violation of Code Sec. 7212(a).

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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