By Alex Dobuzinskis

(Reuters) - A retired U.S. tax judge and her husband have been charged in Minnesota with cheating the government of $400,000 in taxes in a scheme that treated personal spending such as jewelry, pilates classes and overseas vacations as business expenses, prosecutors said on Monday.

A federal grand jury indicted Diane Kroupa and Robert Fackler on charges of tax evasion, obstruction of a tax audit, conspiracy and making and subscribing false tax returns, the U.S. Attorney for the district of Minnesota said in a statement.

"As a former tax court judge, Kroupa dealt regularly with individuals who cheated on their taxes, which makes these allegations particularly troubling," Richard Weber, chief of criminal investigations for the Internal Revenue Service, said in a statement.

The couple, who live in Minnetonka, Minnesota, are scheduled to appear in federal court in Minneapolis later this week, prosecutors said.

In 2003, Kroupa was appointed to the Washington-based U.S. Tax Court, which hears disputes between taxpayers and the IRS. She retired in 2014.

Kroupa, 60, and Fackler, 62, who worked as a political consultant and lobbyist and ran a business called Grassroots Consulting, conspired to cheat on their taxes between 2004 and 2012, according to the indictment against the couple.

During that time, they filed much of their personal spending as business expenses for Grassroots Consulting, prosecutors said.

Those bogus tax deductions included vacations to such destinations as the Bahamas, Greece and Thailand; jewelry and clothing; spa and massage fees; pilates classes; wine club fees; rent and utilities for a home they leased in Maryland; and similar costs for their principal residence in Minnesota, the indictment stated.

The couple is also charged with failing to disclose on their taxes some $44,520 that Kroupa received from a sale of land in South Dakota and with making a false claim of financial insolvency to avoid a tax bill.

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Kroupa and Fackler could not be reached for comment late on Monday.

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





(Reporting by Alex Dobuzinskis in Los Angeles; Editing by Michael Perry)