Former tax court judge, husband indicted on fraud charges

A federal grand jury in Minnesota has indicted a former judge of the U.S. Tax Court and her lobbyist husband on charges of making nearly $1 million in fraudulent deductions on tax returns over much of her tenure as judge.

Diane Kroupa, 60, and her husband, Robert Fackler, 62, are charged with conspiracy to defraud the United States, tax evasion, making and subscribing a false return and obstruction of an IRS audit in connection with allegations spanning the period 2004 to 2010, according to an indictment unsealed Monday.

The Minnetonka couple allegedly understated their personal income by about $1 million and the amount they owed in taxes by at least $400,000, according to the charges.

Kroupa, who was appointed to the court in 2003 and retired in 2014, and Fackler are accused of fraudulently deducting at least $500,000 of personal expenses they listed as expenses at Fackler's consultancy firm, and another $450,000 in purported business costs for which clients had reimbursed Fackler.

Expenses labeled as business costs for Fackler's Grassroots Consulting instead went toward Pilates classes, wine club fees, Chinese tutoring and numerous airline flights, among other allegations. Kroupa, meanwhile, also failed to report a $44,520 real estate transaction, instead claiming that it was part of an unrelated inheritance.

"The tax laws of this country apply to everyone," U.S. Attorney Andrew Luger said in a statement Monday. "And those of us appointed to federal positions must hold ourselves to an even higher standard."

Neither Kroupa nor Fackler could be reached for comment. They are expected in court later this week.

"Reporting personal expenses as business expenses on your tax returns is not tolerated, regardless of your job or position," said Richard Weber, chief of IRS Criminal Investigation.

Kroupa was born in South Dakota and practiced tax law at Faegre & Benson in Minneapolis before being appointed as a judge to the Minnesota Tax Court and later to the U.S. Tax Court in Washington, D.C.

The couple owned homes in Plymouth, Minn., and Easton, Md., where Kroupa stayed while presiding as a judge. She retired four years before her 15-year term was to end. A news report said she oversaw cases involving a Bernie Madoff-linked tax dispute.

In 2013, Fackler filed a Freedom of Information Act lawsuit against the IRS seeking investigative files pertaining to his 2008-2011 tax returns, but the suit was later dismissed, according to court records.

Kroupa and Fackler claimed to be financially insolvent when they knew they had "substantial assets that exceeded their liabilities," according to the 22-page indictment. They also allegedly concealed records that would have revealed fraudulent deductions when filing tax returns, and the Internal Revenue Service issued a notice over a lack of documentation of their business expenses.

Kroupa and Fackler are also each charged with two counts of making a false tax return in 2009 and 2010, respectively, where they understated their income, Grassroots Consulting's net profit and claimed they were owed refunds. One year, the couple would have owed a "significant amount of additional taxes," but instead received a $13,036 tax refund based on their filings. They also allegedly provided false information — including "cut-and-pasted credit card statements" — about business expense deductions to their tax preparer for an IRS audit of their returns.

The IRS' criminal investigation division and the U.S. Postal Inspection Service investigated the case.

Five of the six counts carry sentences of up to five years in prison, while the obstruction charge has a potential three-year sentence.

Stephen Montemayor • 612-673-1755

Twitter: @smontemayor