We have written before about the indictment of former Tax Court Judge Kroupa and the collateral impact of her indictment. Her husband pled guilty last month and on Friday, October 21, she also pled guilty. If you have never gone to a guilty plea hearing, you should take the time to read the transcript of this hearing. You will see how detailed the court is when accepting a plea seeking to foreclose all opportunity for the defendant to later argue that they were not really guilty of the count(s) to which they made a guilty plea. Between the judge and the Assistant U.S. Attorney, it takes over 40 pages of transcript to get in all of the questions. As you will see, the answers are short and sweet.
Occasionally, I have clients or prospective clients in the clinic who have pled guilty to a tax crime. Some tell me they were not really guilty but just pled to end the process. I remind them of their conversation with the judge at the taking of the plea. Although most profess little memory of the event, I know they had to answer the essentially the same questions posed to former Judge Kroupa. While many motivations to plea exist, after going through the plea process the defendant really has little room to wriggle. In a recent HBO series, The Night Of, involving the taking of a state rather than a federal plea, the defendant cannot make the necessary statements of guilt and ends up going to trial. Former Judge Kroupa gave all the right answers. The Court accepted her guilty plea. Now a sentence report must be written and a sentencing hearing held.
What does Former Judge Kroupa get by pleading guilty? She gets a reduction in the sentencing guidelines, she gets only one felony conviction, and she gets to avoid the stress and cost of trial. Let’s look at each of the things she gets but not forget that in all likelihood she also gets to go to prison. The guilty plea is not something she will go home and celebrate about.
The Supreme Court decided several years ago that the federal sentencing guidelines provide guidance to federal judges in imposing criminal sentences; however, the guidelines do not impose mandatory time periods that the judges must follow. Despite the non-binding nature of the guidelines, most judges pay careful attention to them and for that reason so do most defendants.
For tax crimes the guidelines usually start with the amount of tax the defendant has underpaid due to their criminal action. That amount usually provides a baseline number in the guidelines which translates into a recommended sentence. That, however, is just the start. In the case of someone like former Judge Kroupa, the guidelines provide for enhancements because of her special knowledge of the tax laws and her special position in the system. Because of these factors she received a higher number under the guidelines which translates into a higher sentence. By pleading guilty, she receives a reduction because of acceptance of responsibility. If you read the plea transcript you will see a discussion of the enhancements and the reduction.
Building on the base amount and the adjustments, the guideline in her case result in a recommended sentence of 30-37 months. The judge carefully explained in the plea hearing that she will not necessarily follow the guideline and the ultimate sentence could end up higher or lower. The defendant receives no guarantees. The sentencing report will influence the judge as could anything that happens between now and the time of sentencing; however, making the guilty plea does have the effect of reducing the guideline amount from what a guilty verdict would produce. That provides motivation for pleading guilty in weighing the pros and cons.
In pleading guilty former Judge Kroupa received the opportunity to plea to one count and have the remaining counts dismissed. This allows her to control the count to which she pleads guilty and the collateral impact of the plea. She did not plead guilty to the felony of evasion of tax under IRC 7201 which carries with it the consequence of collateral estoppel on the fraud penalty. I wrote recently about a very unusual case in which a guilty plea did not result in collateral estoppel. By negotiating a plea agreement, she had several counts drop away. This may prove beneficial to her although the Department of Justice need not be criticized for entering into the plea since the number of counts may have had little or no impact on the sentence and on the payment of the fraudulently unreported tax.
The IRS may not need collateral estoppel here in order to collect the proper amount of tax. She has already made some tax payments. The 2010 change in the law regarding restitution allows the IRS to assess without having to issue a notice of deficiency the amount order for restitution. When the IRS pursues a criminal tax case, it sets the civil case to the side until the criminal matter ends. The end of her criminal case will mark the renewal of the civil tax audit. Of course, she can agree to the taxes and penalties proposed by the IRS at the end of that audit and terminate the civil case without a fight.
If it does come to a fight about the imposition of the fraud penalty or additional amounts of tax not included in the restitution order, the IRS will issue a notice of deficiency and former Judge Kroupa will have the opportunity to litigate the correctness of the notice before the Tax Court. In such a case the Chief Counsel attorney will wish the plea included the IRC 7201 counts and former Judge Kroupa will undoubtedly wish that she did not have to go to Tax Court to get an opinion on the issue. Of course, she can always pay and go to district court via the refund procedure.
Stress and Cost
The plea agreement transcript contains a detailed list of the medications former Judge Kroupa now takes. I do not know if she took any of these drugs before the criminal investigation but getting investigated for a criminal tax violation is extremely stressful. I would not be surprised to learn that all or most of the drugs assist in dealing with the stress of the investigation. With the plea agreement life will not turn into a bed of roses but the bleakest period may have passed.
Trying a criminal tax case not only creates additional stress but often depletes the bank account of the accused. Already, she will have paid handsomely for the representation she has received. Many former criminal cases produce little tax revenue for the IRS because the defendant spends all of their money on the defense and has very limited job prospects after the conviction. Ending the case with a plea saves some of the costs and may preserve assets to deal with the unpaid taxes and other necessary expenses.
The guilty plea brings the criminal phase of former Judge Kroupa’s case near to conclusion. The IRS has obtained the thing it wants most in a criminal case – publicity. A case like this draws far more attention than the ordinary criminal tax prosecution. Perhaps the silver lining for the tax system in this case is that is may provide more deterrence and this painful event will influence others to file their taxes correctly.