John R. Bullis: The case of a former tax court judge indicted for tax fraud

Diane Kroupa and her husband Robert Fackler were indicted by a federal grand jury for cheating on their income tax returns for years 2004 through 2012.

She was appointed to be a U.S. Tax Court Judge in 2003 for a 15-year term. She retired June 16, 2014. He was a lobbyist and political consultant.

They are charged with conspiring to evade their income tax by claiming personal expenses as business expenses of his Grassroots Consulting firm. They also failed to report $44,520 she received on a sale of South Dakota land. They are charged with falsely claiming financial insolvency to avoid paying tax on $33,031 of cancellation of debt income.

Please note this is only an indictment, not the result of a trial. They are entitled to present their side of the matters at a trial.

However, the charges sound serious. They reportedly claimed personal expenses as business expenses and understated their taxable income by about $1,000,000 and that understated their tax by about $400,000.

The government claimed they concealed documents from their tax preparer and from the IRS during an audit in 2006. Again in 2012, during a second audit, it is claimed they caused misleading documents to be delivered to IRS regarding certain personal expenses that were claimed as business expenses.

The personal expenses involved included rent and related expenses for a second home in Maryland, expenses for their main home in Minnesota, Pilates classes, spa and massage fees, jewelry and personal clothing, wine club fees, Chinese language tutoring, music lessons and expenses for vacations to Alaska, Australia, the Bahamas, China, England, Greece, Hawaii, Mexico and Thailand.

A business expense has to be related to the business activity to increase income or reduce total expenses. There must be a profit motive and a business reason for the expenditure.

As a U.S. Tax Court Judge, Diane Kroupa had knowledge and experience to understand what was allowable as deductions. As a Judge, she is held to a higher understanding of right and wrong.

They each face a maximum sentence of more than 20 years in prison if they are convicted.

Did you hear? “Our forefathers made one mistake. What they should have fought for was representation without taxation,” by Fletcher Knebel.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.