Hot off the Atlanta presses: A Federal Grand Jury indicts Todd and Julie Chrisley of the “Chrisley Knows Best” reality TV show and their CPA on tax related crimes. At this point, they have not been convicted, but critical lessons can be learned nonetheless. It should be noted that the government has a very high conviction rate for those that are indicted for tax related crimes.
Some quick background: The federal government alleges that for a number of years Todd and Julie Chrisley failed to file proper tax returns and pay their proper tax liabilities, in addition to defrauding financial institutions by using false documents to obtain loans. The feds also allege that their CPA provided false information and documents to federal authorities during the investigation.
Under federal tax law, there are frequently both civil penalties (where the taxpayer must pay additional money as the penalty) and criminal penalties (jail time) that can be imposed for the same or similar actions or omissions. However, in most cases, the federal government does not seek criminal prosecutions for tax-related matters unless the taxpayer (or the taxpayer’s advisor) is believed to have taken overt and improper actions. Where the taxpayer simply failed to take a required action (an omission), the IRS is more likely to seek civil penalties instead of criminal prosecution.
Critical Lesson One: Do not deliberately do anything wrong when it comes to the tax laws. While a monetary tax penalty is unpleasant, it is nothing when compared to the loss of freedom and the life you knew that results from receiving a jail sentence.
Critical Lesson Two: Never take improper actions after you start to think you may be in trouble with the IRS. Taking improper actions when trying to fix a potential tax problem can mean that you end up facing criminal instead of only civil penalties.
Critical Lesson Three (For Professional Service Providers): Never take actions that make your client’s problem your problem. Yes, professional service providers are generally known to be nice people who wish to help others, and actually spend their time helping others for a living. However, there is a line that should never be crossed. If you cross it by taking improper actions to help your client, you put yourself at risk of significant penalties, both civil and criminal. You can also destroy your hard-earned reputation and business. It takes a lifetime of good work to create your reputation, but a single improper act can destroy it.
Critical Lesson Four: While this situation illustrates the downside of failing to follow our tax laws and taking actions to throw off the government’s investigation of these failures, similar lessons exist when it comes to asset protection. Those with actual, threatened, or likely liability issues will often seek guidance from an attorney, accountant, or financial advisor in hope of finding a silver bullet strategy that will let them protect their assets from any such actual or potential liabilities. When a client comes to an advisor looking for this kind of help, the advisor should keep a couple of things in mind for his or her own protection and for the good of the client. First, this type of advice should only be given by competent attorneys who know the relevant laws. Second, competent attorneys should advise the client that there is no silver bullet strategy that will protect their assets, and that any actions taken need to pass muster under any applicable fraudulent transfer or voidable transfer laws. If an advisor or client ignores these warnings, then they need to be careful to at least heed the three above-listed Critical Lessons.