Tennessee Rep Indicted on Cigarette Tax Stamp Scheme

Tennessee State Representative Joe Armstrong (D-Knoxville) was indicted by a federal grand jury on Wednesday for an alleged cigarette tax stamp scheme. Authorities say he bought 42 rolls of cigarette stamps in 2006 at $0.20 each, then voted with a majority to increase the cigarette tax to $0.62 the next day, turning around and selling the stamps at a hefty profit. He did not claim the profit as income on his income taxes. From WATE.com:

Documents filed in federal court allege Armstrong devised a scheme in 2006 to profit from the expected increase in cigarette tax stamps in Tennessee and also enlisted others to invest in and finance the scheme.

The indictment said Armstrong took out a loan in June, 2007 for $250,000 to buy 42 rolls of the stamps from Tru Wholesale at the pre-hike rate of 20 cents, knowing it was about to be raised to more than three times that rate. The next day, tax rate was increased to 62 cents.

“The investigation has been ongoing for a number of years. I have a strong belief and respect for our system of justice,” said Armstrong. “I look forward to addressing these allegations and the truth coming out in the very near future.”

Armstong, as a member of the Tennessee General Assembly House of Representatives Committee on the Finance Ways and Means, voted to advance the legislature to raise the tax rate.

The alleged scheme helped Armstrong bring in more than $700,000, with Stivers and the co-conspirator getting part of the check. The indictment said from June 10, 2008 to October 24, 2008, Stivers helped funnel the revenue from the wholesaler, to the bank, and then to Armstrong to hide the source of the profit.

The indictment lists three counts, conspiracy to defraud the United States, attempt to evade and defeat tax, and fraud and false statements.

More examples of cigarette tax stamp fraud and smuggling here.

H/T State Tax Notes.

Follow Scott on Twitter.