Posts Tagged ‘TaxOffenderOfTheYear’

2016 Tax Offender of the Year Gets 34 Months at ClubFed

Sunday, June 25th, 2017

Last April, a husband and wife from Minnesota were indicted on tax evasion charges. There wasn’t anything unusual about what they allegedly did; besides lying to their tax professional and the IRS they deducted personal expenses as business expenses. The reason Diane Kroupa won the award was her profession: She was a judge on the United States Tax Court. She knew better.

Last week Ms. Kroupa received 34 months at ClubFed; her husband received 24 months. Acting United States Attorney Gregory Brooker said,

Over a nearly ten-year period, the defendants engaged in a deliberate and brazen tax fraud scheme…Considering Ms. Kroupa’s position of public trust as a US Tax Court Judge, her crime is particularly egregious. Ms. Kroupa used her knowledge of the tax laws to further their fraud scheme, conceal their criminal conduct and maintain their acquisitive lifestyle. The sentences handed down today show that no one is above the law.

There’s not much to add to that statement.

The 2016 Tax Offender of the Year

Tuesday, December 27th, 2016

Every year I hope that I won’t find any deserving individuals of the Tax Offender of the Year Award. To win this award, you need to do more than cheat on your taxes; it has to be a Bozo-like action or actions. As usual, we had plenty of nominees.

Coming in third this year is the Internal Revenue Service. What did the IRS do to deserve this award? Well, we have the IRS Scandal; it’s still unresolved. If we were to believe the IRS nothing untoward happened! I’m sure that’s why Commissioner Koskinen faced an impeachment resolution. And remember the data breaches? It wasn’t 104,000 people who were victimized back in 2015 (the “Get Transcript Hack) nor was it 334,000 taxpayers. There were over 700,000 people impacted (and over 500,000 unsuccessful attempts)! As Joe Kristan says, “The IRS: Protecting your identity since 1913.” Or not.

Coming in second place this year is the Miccosukee tribe of Indians in Florida. They’ve been fighting in both US District Court and US Tax Court that income to members of the tribe from a casino isn’t taxable. To date, they’ve lost every single case. Most recently, in August US District Judge Ceclilia Altonaga ruled that a tribal member must pay nearly $279,000 in taxes, penalties, and interest stemming from not filing a 2001 tax return. The Tax Court cases have been inching along; most recently, the Tax Court ruled that a trial will be held and that the tribe cannot subpoena witnesses from the Department of the Interior to interpret statutes (the judges will do that). In March, the tribe lost an appeal that they were immune from US taxes. (The lawsuit alleged that the US had waived sovereign immunity for the tribe. The lawsuit was dismissed in US District Court; the tribe appealed and lost that appeal.)


A husband and wife from Minnesota were indicted in April on tax evasion charges. The charges, detailed in the indictment, are very typical tax charges. The couple were alleged to have fraudulently claimed personal expenses as business expenses, including rent, utilities, garbage removal, household cleaning, remodeling windows, interior design fees, a dishwasher, furniture to stage a house for sale, Pilates classes, jewelry, wine club fees, and grooming expenses. (There are more, but that’s a good range of the expenses they claimed on their returns.)

They were also alleged to have not reported income from a sale of land in South Dakota, and to have not reported canceled debt income. Adding to their troubles, they were alleged to have lied to an IRS Office Examiner during an audit of their 2004 and 2005 tax returns in 2006. It’s a very bad idea to lie to an IRS employee; that’s a felony. They then allegedly lied again during an audit of their 2009 and 2010 returns (in 2012). One would think they had learned but….

Of course, they allegedly lied to their tax professional regarding all of the returns, grossly understating their income. They ended up owing an additional $500,000 in taxes, penalties, and interest.

Unfortunately, this kind of tax crime (taking personal expenses as business expenses) is fairly common. Most individuals believe that they just won’t get caught. As the Tax Court has noted,

Taxpayers may deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. The term “ordinary and necessary business expenses” means only those expenses that are ordinary and necessary and are directly attributable to the trade or business. The term does not include personal, living, or family expenses. Simply because an expense would not have been incurred but for the taxpayer’s engaging in a trade or business is insufficient to allow a deduction. The nature of the expense must not be personal or otherwise nondeductible.

There are many expenses that are helpful, even essential, to one’s business, but which are not deductible in our tax system. Expenses of driving to and from work, for example, are not deductible. Expenses for clothing worn in a taxpayer’s trade or business, and the costs of laundering the clothing, are not deductible if the clothing is adaptable for nonbusiness wear.

The judge who wrote that decision is Diane Kroupa. Ms. Kroupa was a US Tax Court judge from June 2003 until her resignation in June 2014. She’s also one of the two defendants in this case. Yes, a former Tax Court judge committed tax evasion. And that is why she is the 2016 Tax Offender of the Year.

When Judge Kroupa and her husband were indicted, my reaction was the same as Law Professor Dennis Ventry, Jr. of the UC Davis Law School:

Smart people do dumb things all the time but this is a head-scratcher. If you’re a high-level government employee, you side on saying ‘no’ to a deduction; you take the conservative approach.

I didn’t report on this case when the indictment was issued in early April (it was during the annual down-time for my blog). I had noticed the story, of course, but basically couldn’t believe it. However, both Robert Fackler (Judge Kroupa’s husband) and Judge Kroupa pleaded guilty.

In the plea examination, Judge Kroupa admitted her crime:

Q. And neither you nor Mr. Fackler told the tax preparer the amounts reflected in the information, spreadsheets, or tax organizers that you gave him included personal expenses that were disguised as business expenses?
A. No.
Q. That fact is true?
A. That fact is true, we did not provide that information.
Q. And by doing that, you thereby significantly and fraudulently increased Grassroots Consulting’s business expenses, which then reduced the amount of taxes that you jointly owed to the IRS?
A. Correct.
Q. And on page 4 and page 5 of this plea agreement there is a list of descriptions of specific expenses that were included supposedly as business expenses which were, in fact, personal expenses, correct?
A. Correct.
Q. You’ve looked at this list and either you know that these are ones that were included or else you have seen evidence to that effect?
A. Correct.
Q. So in total from 2004 through 2010 did you and Mr. Fackler fraudulently deduct at least 500,000 of personal expenses as purported Schedule C business expenses?
A. Yes.

Judge Kroupa certainly knew the law; her resume is quite impressive:

Judge. b. South Dakota. B.S.F.S. Georgetown University School of Foreign Service, 1978; J.D. University of South Dakota Law School, 1981. Prior to appointment to the Court, practiced tax law at Faegre & Benson, LLP in Minneapolis, MN. Minnesota Tax Court Judge from 1995 to 2001 and Chief Judge from 1998 to 2001. Attorney-advisor, Legislation and Regulations Division, Office of Chief Counsel and served as attorney-advisor to Judge Joel Gerber, United States Tax Court, 1984-1985. Admitted to practice law in South Dakota (1981), District of Columbia (1985) and Minnesota (1986). Member, American Bar Association (Tax Section), Minnesota State Bar Association (Tax Section), National Association of Women Judges (1995 to present), American Judicature Society (1995 to present). Distinguished Service Award Recipient (2001) Minnesota State Bar Association (Tax Section). Volunteer of the Year Award, Junior League of Minneapolis (1993) and Community Volunteer of the Year, Minnesota State Bar Association (1998). Appointed by President George W. Bush as Judge, United States Tax Court, on June 13, 2003, for a term ending June 12, 2018.

Unfortunately, we must add, “Pleaded guilty to tax charges (2016)” to that list.

Judge Kroupa’s actions—a former Tax Court judge committing tax evasion—make her a worthy recipient of the 2016 Tax Offender of the Year Award.


That’s a wrap on 2016! While I am hopeful 2017 will not provide me a lengthy list of candidates for Tax Offender of the Year, I suspect that I’ll have plenty of choices.

I wish you and yours a happy, healthy, and prosperous New Year!

Nominations Due for 2016 Tax Offender of the Year

Monday, December 5th, 2016

In a little less than a month it will be time to reveal this year’s winner of the prestigious “Tax Offender of the Year” award. Remember, To be considered for the Tax Offender of the Year award, the individual (or organization) must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Here are the past lucky recipients:

2015: Kenneth Harycki
2014: Mauricio Warner
2013: U.S. Department of Justice
2012: Steven Martinez
2011: United States Congress
2010: Tony and Micaela Dutson
2009: Mark Anderson
2008: Robert Beale
2007: Gene Haas
2005: Sharon Lee Caulder

2015 Tax Offender of the Year

Wednesday, December 30th, 2015

Once more it’s time to award that prestigious award, the 2015 Tax Offender of the Year. The winner of this award must do more than just cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Unfortunately, there were plenty of nominations.

Dissatisfied with only winning the Tax Offender of the Year award once, the US Congress made a strong push for the award. However, they snatched defeat from the jaws of victory (which is a good thing; this award really isn’t something to brag about). Just two weeks ago they passed both a budget and tax “extender” legislation, and even codified the Enrolled Agent profession as part of the legislation. That last item eliminated Congress from the running.

The Miccosukee tribe was in the running again. They’ve fought a quixotic battle against the IRS, alleging that their members are exempt from US taxation on their income from a casino. The tribe has been fighting the IRS in court (and losing, time after time). Most recently, the Tax Court ruled that an IRS levy wasn’t an abuse of discretion.

However, that’s not the most recent ruling against the tribe. Just last week the 11th Circuit Court of Appeals ruled against the tribe. The tribe had appealed a dismissal of a lawsuit against former tribal officials, attorneys, a law firm, and an investment firm:

Applying the Rule 9(b) standard to the present complaint, we note that the district court previously afforded the Tribe the opportunity to amend its complaint to add particularity. In doing so, the Tribe submitted a 314-page second amended complaint which, at first blush, appears to contain particularity…The complaint’s 314 pages, therefore, appear largely to be an attempt to create the impression of specificity through page-number “shock and awe.”

Let’s just say that the Court was neither shocked nor awed:

The deficiency of the pleadings exists at a more fundamental level. Looking first at the allegations concerning the attorney defendants, the complaint suffers from a wholesale lack of detail to satisfy the plausibility standard of Iqbal and Twombly or the heightened requirements of Rule 9(b)…No attempt is made, however, to articulate what services were deemed legitimate and proper, what services comprised part of the alleged fraudulent scheme, and what rates were inflated…There is, therefore, insufficient specificity to distinguish between what attorney matters the Tribe deems to have been legitimate and what the Tribe deems to have been illegitimate. Finally, the Tribe alleges a kickback scheme in which the attorneys received payment and refunded money to Cypress, but there are no factual references to support these allegations. [foonote omitted]

The decision of the lower court was affirmed. And, yes, there’s worse to come.

Our final runner up was IRS Commissioner John Koskinen. While I applaud the lead he appears to now be taking on identity theft, Commissioner Koskinen’s reaction to the IRS scandal has been ridiculous. I agree with Joe Kristan’s comment earlier this year:

His glib, arrogant and obstructionist response to the Tea Party scandal, full of denials of the existence of information that subsequently surfaced, has destroyed his credibility. There’s no hope that the IRS will get improved funding as long as he is around to spend it.

Yet Mr. Koskinen’s bad leadership pales to the amazing tale I’m about to tell.


Stillwater, Minnesota is like many small cities in the midwest. It’s a popular day trip for residents of the Twin Cities (Minneapolis and St. Paul), and it’s largest industry appears to be tourism.

In 2006, Kenneth Harycki owned Customized Payroll Solutions in Stillwater and was its mayor. He was a CPA and had a nice business. He took on new clients in 2007, Thurlee and Roylee Belfrey (brothers) who ran some home health care businesses. So far, nothing out of the ordinary.

Unbeknownst to Mr. Harycki, the Belfreys allegedly ran their business as their own personal piggy bank. That supposedly including defrauding the US Department of Health and Human Services and skimming off payroll tax deposits. Mr. Harycki discovered this after he took the Belfreys on as clients:

Within the first few payroll cycles for Model Health Care, Harycki “concluded that while payroll taxes were being withheld from the wages of employees, those taxes were not being paid over to the government,” according to his guilty plea.

Now, when I discover a defalcation against a client I will, of course, report it to them. If I discover a client is committing payroll tax fraud (thankfully, I’ve never had this happen), I’m required to tell them to stop, and to drop them as a client. Mr. Harycki, a CPA, certainly understood the ethical requirements of his profession.

Well, maybe not.

Mr. Harycki had other ideas of what to do. Back in January when I first reported on this, I gave the three choices that could have been considered:

(a) Tell them that the taxes aren’t being paid, that’s violating the law, and you need to fix this (which could include setting up payment plans with the IRS and Minnesota, or just paying the withheld funds);
(b) Tell them that if they don’t start remitting the withheld funds that he would need to quit the engagement; or
(c) Join the conspiracy.

Yes, Mr. Harycki decided to join the conspiracy. And boy did he do so!

According to the defendant’s guilty plea, on February 18, 2010, HARYCKI created the entity MKH Holdings, Inc., to assume control over bank accounts used to fund businesses operated by the co-conspirators. The entity was used to cause funds falsely reported on income tax returns to be paid to the co-conspirators and others. During the course of the conspiracy, HARYCKI also incorporated other businesses, obtained employer identification numbers, paid for personal expenses, filed false tax returns, and opened and used numerous bank accounts for the benefit of the separately charged co-conspirators in order to avoid payment of taxes.

There’s not much to add here. Mr. Harycki should have, once he discovered the fraud, told them of the law violations and quit the engagement. The only good that is coming from this is that Mr. Harycki appears to be cooperating with the Department of Justice in the cases against the Belfreys (who are now also facing a tax fraud charge).


That’s a wrap on 2015! While I’m hopeful that 2016 will find me bereft of candidates for the Tax Offender of the Year award, I suspect my cup will again run over.

I wish you and yours a happy, healthy and prosperous New Year.

Last Chance for Nominees for 2015 Tax Offender of the Year

Sunday, December 27th, 2015

In just four days (December 31st) I’ll be announcing this year’s winner of the prestigious “Tax Offender of the Year” award. Remember, To be considered for the Tax Offender of the Year award, the individual (or organization) must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Here are the past lucky recipients:

2014: Mauricio Warner
2013: U.S. Department of Justice
2012: Steven Martinez
2011: United States Congress
2010: Tony and Micaela Dutson
2009: Mark Anderson
2008: Robert Beale
2007: Gene Haas
2005: Sharon Lee Caulder

Nominations Due for 2015 Tax Offender of the Year

Monday, November 30th, 2015

With just about one month left in 2015, it’s time for a reminder to submit nominations for the 2015 Tax Offender of the Year. To be considered for the Tax Offender of the Year award, the individual (or organization) must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Here are the past lucky recipients:

2014: Mauricio Warner
2013: U.S. Department of Justice
2012: Steven Martinez
2011: United States Congress
2010: Tony and Micaela Dutson
2009: Mark Anderson
2008: Robert Beale
2007: Gene Haas
2005: Sharon Lee Caulder

Former Mayor (and Current CPA) Learns of Tax Fraud, Joins the Conspiracy

Friday, January 16th, 2015

This is for the don’t do this at home file for tax professionals. Kenneth Harycki is the former mayor of Stillwater, Minnesota. He’s also a licensed CPA in Minnesota (but probably not for much longer). Mr. Harycki will provide an interesting lesson the next time I teach ethics.

Mr. Harycki provided accounting, tax, payroll, and bookkeeping services to clients. Back in 2007, he provided services to Model Health Care. From the Department of Justice press release:

Within the first few payroll cycles for Model Health Care (Model), a company controlled by the two separately charged co-conspirators, the defendant concluded that while payroll taxes were being withheld from the wages of employees, those taxes were not being paid over to the government. The defendant learned that these co-conspirators had directed that the withheld taxes not be paid to the government and, instead, the taxes would be used for other purposes, including compensating the co-conspirators and their family members and funding other businesses operated by the co-conspirators.

Now, let’s assume you’re a tax professional and you learn that a company is withholding payroll taxes and not paying them to the IRS. Would you:
(a) Tell them that the taxes aren’t being paid, that’s violating the law, and you need to fix this (which could include setting up payment plans with the IRS and Minnesota, or just paying the withheld funds);
(b) Tell them that if they don’t start remitting the withheld funds that he would need to quit the engagement; or
(c) Join the conspiracy.

Choice (c) is not one that most of us would consider. It is, though, the one that Mr. Harycki not only considered but did:

According to the defendant’s guilty plea, on February 18, 2010, HARYCKI created the entity MKH Holdings, Inc., to assume control over bank accounts used to fund businesses operated by the co-conspirators. The entity was used to cause funds falsely reported on income tax returns to be paid to the co-conspirators and others. During the course of the conspiracy, HARYCKI also incorporated other businesses, obtained employer identification numbers, paid for personal expenses, filed false tax returns, and opened and used numerous bank accounts for the benefit of the separately charged co-conspirators in order to avoid payment of taxes.

Given that the tax loss is between $1 million and $2.5 million, Mr. Harycki will be heading to ClubFed.

There’s not much to add to the press release. If I discover a defalcation while preparing a return, it’s my responsibility to tell the client. And if my client tells me he’s going to continue the actions, I’m required to quit the engagement. I’ve had to do this once in my career; if I discovered such a fraud I’d make the easy decision to get out the engagement. Apparently Mr. Harycki’s ethics were a bit different than most CPAs and EAs. My. Harycki has received a nomination for the 2015 Tax Offender of the Year, though.

2014 Tax Offender of the Year

Wednesday, December 31st, 2014

It’s time again for that most prestigious of prestigious awards, the 2014 Tax Offender of the Year. The winner of this award must do more than just cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Once again, there were plenty of nominees.

The Miccosukee tribe is still having its battles with the IRS. The tribe is exempt from taxes but its members are not. The tribe has refused to send financial documents to the IRS. The tribe appealed the most recent order that they do provide the data; a ruling is expected soon from the 11th Circuit Court of Appeals. If the tribe loses this round, the battle will likely be over.

Another nominee was John Koskinen. If that name sounds familiar to you, it should; he’s the IRS Commissioner. Mr. Koskinen testified to Congress that, “I’ve tried to tell you the truth every time I’ve been here.” I had a simple question for Mr. Koskinen: Why doesn’t that quote read I’ve told you the truth every time I’ve been here? The obfuscation by the IRS on the current scandal has led directly to the IRS’s budget being cut.

Charles Waldo received a nomination for allegedly emulating Steven Martinez. (Mr. Martinez won the 2012 Tax Offender of the Year award for hiring a hit man to eliminate witnesses against him in a tax fraud case.) Mr. Waldo was arrested on a 50-count indictment for insurance fraud, tax evasion, felony vandalism, and a high speed chase in California. While awaiting trial, Mr. Waldo allegedly hired a hit man to kill witnesses against him. He’s had ten additional counts added to his indictment. At this point, though, these are just allegations; we’ll have to wait until 2015 to see if Mr. Waldo can truly be nominated.

Finally, Rashia Wilson received a nomination. Ms. Wilson received 21 years at ClubFed for tax fraud. Now, she was indicted in 2012 and convicted in 2013. For those who don’t remember her, there’s this from the Tampa Bay Times:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

Ms. Wilson also posted this wonderful picture:

Rashia Wilson (Image Credit: Tampa Police Department)

In any case, Ms. Wilson, who now resides at a federal prison in Aliceville, Alabama, was ordered to pay $25 each quarter toward the $3.1 million in restitution she owes the IRS. She has asked a US District Court to suspend the payments because she is only making $5.25 each month and must buy vitamins and hygiene items. Ms. Wilson is a reminder to all that bragging about illegal activities on Facebook isn’t a brilliant idea.


Back in 2012 I wrote a post titled, “A Modest Proposal on Tax-Related Identity Theft.” The IRS admits that this is a huge issue. Unfortunately, the IRS is still mostly reactive rather than proactive on this front.

This year, I’ve decided to spotlight an identity thief as the Tax Offender of the Year. I deliberately chose this kind of tax offense because, as the IRS states, “We know identity theft is a frustrating process for victims.” I don’t know of any tax professional with a large practice who hasn’t seen a case of identity theft. My business partner’s late stepfather was a victim of identity theft when his social security number was published on the Social Security Death Index.

Identity theft causes trauma in a victim’s life, and this trauma can last years. The problems can be psychological and actual, impacting the mundane (purchasing), filing a tax return, buying property, and a victim’s self-esteem.

I had literally hundreds of identity thieves to choose from. I naturally chose someone who committed a huge fraud, and whose actions were egregious. For the record, a Google search of the Justice Department’s website looking for “identity theft” for just December 2014 found about 140 entries.

From Smyrna, Georgia comes the story of Mauricio Warner. Mr. Warner told individuals that you could receive a “stimulus payment” or “Free Government Money.” Instead, the over 5,000 victims had a tax return filed in their names. The tax returns contained false income amounts and refundable tax credits to generate the erroneous refunds. Of course, the refunds were direct deposited into bank accounts that Mr. Warner controlled.

Mr. Warner was indicted in April, 2013. He was accused of 16 counts of wire fraud, 16 counts of aggravated identity theft, 16 counts of filing false claims, and two counts of money laundering. He was tried earlier this year, and found guilty of all the charges. He was sentenced to 20 years at ClubFed and was ordered to make restitution of $5,041,869. Partial restitution has already occurred; the court ordered forfeiture of seven bank accounts that contained $4,185,455.31. (While there have been abuses of forfeiture, this is a case where it appears to be amply justified.) For the record, Mr. Warner has filed an appeal.

While the IRS continues to spend money on its quixotic goal of regulating all tax professionals, the plague of identity theft continues. Yes, the IRS is making strides and has implemented some ideas that will stop some of this scourge. But priorities at the IRS seem a little off to me: All of the money being directed into the IRS’s Annual Filing Season Program could be redirected into fighting identity theft.


One year I’m hopeful that I’ll write, “I could not find a deserving candidate for the Tax Offender of the Year.” Unfortunately, I suspect that I’ll have plenty to choose from in 2015, too.

That’s a wrap on 2014. I wish everyone a happy, healthy, and safe New Year.

Nominations Due for 2014 Tax Offender of the Year

Tuesday, December 23rd, 2014

With just about one week prior to the end of 2014, it’s time for a final reminder to submit nominations for the Tax Offender of the Year. To be considered for the Tax Offender of the Year award, the individual (or organization) must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Here are the past lucky recipients:

2013: U.S. Department of Justice
2012: Steven Martinez
2011: United States Congress
2010: Tony and Micaela Dutson
2009: Mark Anderson
2008: Robert Beale
2007: Gene Haas
2005: Sharon Lee Caulder

Copying Steven Martinez’s Idea Is Not a Good Choice

Sunday, October 19th, 2014

I’m on the road this weekend, but a story from the San Francisco Bay Area caught my eye. Charles Waldo was already in jail. He was arrested on a 50-count indictment for insurance fraud, tax evasion, felony vandalism, and a high speed chase through central Costa Contra County. While awaiting trial, Mr. Waldo was in the Martinez, California jail.

When you’re in prison you do have time on your hands to determine your defense. There’s plenty of time to research the law on the charges you’re facing, work on strategy with your defense counsel, and perhaps other means of helping your case. Mr. Waldo allegedly decided to follow the idea of Steven Martinez. Mr. Martinez, for those who don’t remember, won the coveted 2012 Tax Offender of the Year award for hiring a hit man to eliminate the witnesses against him. Yes, Mr. Waldo supposedly did the same thing.

Mr. Waldo was indicted on Friday on nine counts of solicitation to commit murder and one count of conspiracy to commit murder. According to the press release from the Contra Costa County District Attorney’s office,

The indictment alleges that while serving time in custody at the Martinez Detention Facility, the defendant solicited and conspired with other inmates to arrange the killing of nine different witnesses that were set to testify against him at an upcoming trial. These ten new charges will be added to the fifty charges the defendant currently faces.

There is one bright spot for Mr. Waldo if he is found guilty and spends a very lengthy term at a California penal institution: He’s a shoe-in to be nominated for Tax Offender of the Year in a future year.