Julie Chrisley and Todd Chrisley (Photo by Frederick M. Brown/Getty Images)
Yesterday, a federal grand jury indicted Todd and Julie Chrisley, stars of the hit reality TV show Chrisley Knows Best, for conspiracy, bank fraud, wire fraud, and tax evasion. Their tax preparer Peter Tarantino has also been indicted on similar tax-related charges.
The Department of Justice issued a press release accusing the Chrisleys of obtaining fraudulent loans by providing financial statements with false information and fabricated bank statements. They are also accused of using similar tactics along with using a fabricated credit report that had been physically cut up and pasted together to obtain a lease for a home in California.
They are also accused of failing to timely file tax returns and paying taxes from 2009 until 2016. They took steps to hinder the collection of back taxes by hiding income and lying to third-parties about their tax returns. Their tax preparer is also accused of lying to FBI and IRS criminal investigation agents.
The Chrisleys responded on their Instagram page by blaming a rogue employee for what happened. They claim that the employee stole from them, forged documents (along with their signatures), and threatened other employees with violence. Once this employee was fired, he sought revenge by providing the false documents to the U.S. Attorney’s Office.
Generally, before someone is indicted for tax evasion, he or she is investigated by the IRS’s Criminal Investigation Unit. A criminal investigation is usually initiated at the referral of an IRS auditor or collections officer when they suspect fraud or other financial crimes. Once the investigation begins, it is kept secret from the taxpayer. Typically, the IRS auditor or collections officer will stop working on the case and will cease contact with the taxpayer while the investigation is taking place. Once the special agent assigned to the case has completed his or her preliminary investigation, there must be an approval from the supervisor and the special agent in charge before the investigation continues.
At some point, the taxpayer will be contacted by the IRS special agent. If the agent tries to meet the taxpayer in person, he or she is accompanied by a partner. IRS special agents are considered law enforcement officers and carry firearms.
The special agent will also conduct a very invasive investigation. This includes interviewing third parties, summoning bank records, conducting surveillance, and executing search warrants.
Once the special agent’s investigation is complete, he along with his supervisor will decide whether to discontinue the investigation or refer it the U.S. Attorney’s Office or the Department of Justice Tax Division with a recommendation for criminal prosecution.
If the recommendation is accepted by the U.S. Attorney’s Office or the DOJ Tax Division, they will then prepare the case for prosecution and then seek an indictment by a grand jury.
Among the charges the Chrisleys face is tax evasion by failing to pay taxes. To be convicted of tax evasion, the government must prove beyond a reasonable doubt that there was a tax owed, the taxpayer took actions to evade payment of the tax, and those actions were willful.
Not paying taxes by itself is not enough to be charged with criminal tax evasion, otherwise the number of people facing jail time would be massive. Typically actions to evade involve deceit and concealment of money or assets. Common examples include placing money in bank accounts in someone else’s name, lying to IRS personnel, excessive cash transactions, and purchasing assets in other people’s names.
The indictment accuses the Chrisleys of setting up a new bank account that does not list them as the owners but instead names a third party as the owner. The Chrisleys then directed all future income toward that account. But in reality, the Chrisleys controlled the bank account and they set it up this way in order to hide it from the IRS.
But if the Chrisleys’ story about the rogue employee crafting phony documents and forging signatures is true and can be proven, that could result in an acquittal because that could show that there was no affirmative action to evade tax nor was there willfulness.
In 2018, the IRS’s Criminal Investigation division investigated 2,886 cases, 73 percent of them involving traditional tax cases such as tax evasion. Because the number of investigations and prosecutions are relatively small, the IRS must only refer cases that are certain to result in a conviction.
Tax agencies like the IRS pay special attention to high-profile people including celebrities, dignitaries and politicians. Why? Because they are seen as low-hanging fruit and yield high returns. Celebrities are usually wealthy and as a result tend to have large tax bills. Also, their lives are highly publicized and so finding information, documents, or an unwise statement is easier. Finally, because the indictment will attract media coverage, and people love to read about celebrities screwing up, the news will have a deterrent effect. The indictment charges the Chrisleys’ tax preparer with two counts of filing false corporate tax returns. The timing is convenient considering that the extended corporate tax return due date is about a month away.
In the future, we will see whether this case goes to trial or whether a plea deal will be reached. The Chrisleys said that they have done nothing wrong and they claim to have evidence and witnesses to prove their case. They close by putting their faith in God and quoting some Bible verses. But it will take a lot more than thoughts and prayers to get out of a criminal indictment.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.