Feds Charge Joe Armstrong With Fraud, Tax Evasion


NASHVILLE, Tenn. (AP) – Democratic state Rep. Joe Armstrong of Knoxville has been indicted on federal fraud and tax evasion charges connected to an increase in the state's cigarette tax in 2007.


The indictment filed Tuesday in U.S. District Court alleges that Armstrong devised a scheme beginning in 2006 to profit from the cigarette tax hike planned by then-Gov. Phil Bredesen.

According to the charges, Armstrong borrowed $250,000 to buy tax stamps at the old 20-cent rate, and then sold them at a profit after lawmakers enacted a 42-cent increase in June 2007. The lawsuit says Armstrong failed to report more than $318,000 in income from the scheme in 2008.

Armstrong's attorney, Gregory P. Isaacs, said in a statement Wednesday that the 26-year lawmaker plans to plead not guilty to the charges.

"Joe is an innocent tax payer who relied upon a tax professional as it relates to the filing of his tax returns," Isaacs said in the statement.

Armstrong said in the lawyer's statement that the federal investigation has been going on for years.

"I have a strong belief and respect for our system of justice," he said. "I look forward to addressing these allegations and the truth coming out in the very near future."

Armstrong was by Bredesen's side when he toured East Tennessee in 2007 to promote the 40-cent cigarette tax increase to help fund an increase in education funding. Armstrong said at the time the tax should have been raised even further.

"Instead of 40 cents, it should have been a dollar," he said at an event in Oak Ridge in April 2007.

Bredesen on Wednesday declined to comment on Armstrong's indictment.

State revenue officials blamed widespread stockpiling of the old tax stamps for collections falling more than 50 percent below projections in the months after the cigarette tax went into effect. Then-Revenue Commissioner Reagan Farr said the state sold $9 million more tax stamps in the months before the hike than in the same period the year before.

"We had a lot of people on the last day of June trying to buy multiple rolls of stamps," Farr said at the time. "Interestingly, when we said we'd provide them on July 1, they didn't want to buy any at all."

Armstrong's accountant, Charles Marshall Stivers of Manchester, Kentucky, pleaded guilty to a related fraud charge in April.

The plea agreement filed under seal before Armstrong's indictment was made public only refers to the accountant's interaction with "an elected official" who wanted to profit from the tax increase.

Stivers "asked the elected official if he wanted to pay income taxes on the money," according to the plea agreement. "The elected official stated, 'No,' and 'If I can get by with all of this that would be great.'"

The return on the purchase of $250,000 worth of tax stamps was $750,000, according to the agreement. Stivers agreed to a 15 percent cut for funneling the proceeds through his bank.

Republican House Speaker Beth Harwell of Nashville said in an email that while she hasn't seen the Armstrong indictment, she "would in no way defend any unlawful activity by a member, and take it very seriously."

"Members of the Legislature should never act to seek personal gain from their service to the state," Harwell said.

House Democratic Leader Craig Fitzhugh of Ripley said he's served with Armstrong for more than 20 years, and "I have never known him to be anything other than a dedicated public servant and an advocate for his community."

"We have a justice system in place to deal with these situations," Fitzhugh said. "I believe it is important to reserve our judgment until all the facts have come to light."

Armstrong became Knox County's youngest commissioner in 1982, and would later be elected to represent House District 15 in 1988. He is tied with Speaker Harwell and Rep. Steve McDaniel, R-Parkers Crossroads, as the longest-serving members in the House.

He's known for strongly advocating for minority viewpoints, yet willing to work with Republicans on business-related matters.

Armstrong is a former chair of the Tennessee Legislative Black Caucus. His two-year term as president of the National Black Caucus of State Legislators ended in January. The state House Democratic Caucus this year elected Armstrong the new position of leader pro tem.

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