KNOXVILLE (WATE) – State Rep. Joe Armstrong has been indicted on tax fraud charges, alleging Rep. Armstrong, his CPA, Charles Stivers, and an unindicted co-conspirator purchased Tennessee cigarette tax stamps and sold them at a profit after the cigarette tax rate was increased by a new state law.

Armstrong is charged with conspiracy to defraud the United States, attempt to evade and defeat tax, and fraud and false statements. His attorney, Greg Isaacs, said they have conducted a parallel investigation and that Armstrong plans to enter a plea of not guilty to all charges.

“Joe is an innocent tax payer who relied upon a tax professional as it relates to the filing of his tax returns,” said Isaacs. “Representative Armstrong has proudly served his constituents for the 15th district before the Tennessee General Assembly in Nashville for the past 27 years; where he has emerged as a leader in Tennessee State Government.”

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..

Armstrong and the others then allegedly failed to report their profits on their federal income tax forms.Web Extra: Read the full indictment [PDF]

House Democratic Leader Craig Fitzhugh issued this statement: “Joe Armstrong and I have served together for over 20 years. In that time, 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. I believe it is important to reserve our judgement until all the facts have come to light. Until then, my thoughts are with Joe and his family as this process moves forward.”