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Former tax judge sentenced to prison for tax fraud

Former Minnesota Tax Court Judge Diane Kroupa is headed to prison for—wait for it—tax fraud.  So is her husband, who received a shorter sentence.

Kroupa, 61, was sentenced to 34 months and Robert Fackler, 63 was sentenced to 24 months. They must pay $457,104 in joint restitution.

Both defendants entered guilty pleas and were sentenced June 22 by Judge Wilhelmina M. Wright in U.S. District Court in St. Paul. In addressing Kroupa’s extensive tax fraud committed while a sitting U.S. Tax Court judge, Wright stated, “When a person in a position of trust violates that trust, the public is a victim,” and further noted that Kroupa’s fraud undermined the trust in the justice system.

Kroupa was a Minnesota Tax Court Judge from 1995 to 2001 and was chief judge from 1998 to 2001. She was appointed by President George W. Bush as a federal judge on the United States Tax Court, on June 13, 2003, for a term ending June 12, 2018. She retired from the Tax Court on June 16, 2014.

During the same period, according to court documents, Kroupa was married to Fackler, a self-employed lobbyist and political consultant who owned and operated a business known as Grassroots Consulting. From 2004 to 2013, Kroupa and Fackler owned a home in Plymouth, Minnesota. From 2007 to 2013, they also leased a second residence in Easton, Maryland,

According to the plea agreement and documents filed in court, between 2002 and 2012, Kroupa and Fackler conspired to obstruct the IRS from accurately determining their joint income taxes. As part of the conspiracy, they worked together each year to compile numerous personal expenses for inclusion as supposed “business expenses” for Grassroots Consulting in their joint tax return. Those expenses included: rent and utilities for the Maryland home; utilities, upkeep and renovation expenses of the Minnesota home; Pilates classes; spa and massage fees; jewelry and personal clothing; wine club fees; Chinese language tutoring; music lessons; personal computers; and expenses for vacations to Alaska, Australia, the Bahamas, China, England, Greece, Hawaii, Mexico and Thailand.

In total, from 2004 through 2010, the defendants fraudulently deducted at least $500,000 of personal expenses as purported Schedule C business expenses. At times, Kroupa prepared and provided to Fackler summaries of personal expenses falsely described according to business expense categories. On other occasions, Kroupa herself compiled and provided to their tax preparer the fraudulent personal expenses.

According to court documents, as part of the conspiracy, Fackler also caused Grassroots Consulting business receipts to be understated by approximately $450,000 by fraudulently deducting purported business expenses which had previously been reimbursed. As a result, the defendants caused the amount of adjusted gross income, taxable income, and total tax shown on their income tax returns to be falsely understated.

Kroupa and Fackler made a series of other false claims on their tax returns, including failing to report approximately $44,520 that she received from a 2010 land sale in South Dakota. The defendants also falsely claimed financial insolvency to avoid paying tax on $33,031 on cancellation of indebtedness income.

According to the plea agreement and documents filed in court, Kroupa and Fackler purposely concealed documents from their tax preparer and an IRS Tax Compliance Officer during an audit for their 2004 and 2005 tax returns. During a second audit in 2012, they caused false and misleading documents to be delivered to an IRS employee in order to convince the IRS employee that certain personal expenses were actually business expenses of Grassroots Consulting.

After the IRS requested documents pertaining to their tax returns, Kroupa and Fackler removed certain items from their personal tax files before giving them to their tax preparer because the documents could reveal they had illegally deducted numerous personal expenses. During the audit, Kroupa also falsely denied receiving money from the 2010 land sale. Later, when they learned the 2012 audit might progress into a criminal investigation, Kroupa instructed Fackler  to lie to the IRS about her involvement in preparing the portion of their tax returns related to Grassroots Consulting.

According to court documents, between 2004 and 2010, Kroupa and Fackler purposely understated their taxable income by approximately $1,000,000 and purposely understated the amount of tax they owed by at least $450,000.

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