In 2022, Todd and Julie Chrisley were sentenced to prison for, among other things, tax fraud. The celebrity couple known best for their reality TV show titled “Chrisley Knows Best” became famous, in part, for their impression of living a lavish lifestyle. However, it was all a sham, which led to them being convicted of financial crimes. In unexpected news, President Trump has pardoned the Chrisleys. This article discusses their crimes, how what they did for tax evasion differs from legal tax avoidance, and what their pardoning might mean for tax enforcement during Trump’s second term.
Todd and Julie Chrisley’s Financial Crimes
According to the United States Attorney’s Office for the Northern District of Georgia, Todd and Julie Chrisley’s fraudulent activity began when the couple defrauded community banks in Georgia. The couple used falsified bank statements, financial records, and personal financial information to obtain over $36 million in loans from these banks.
Additionally, the Chrisleys provided false financial documents to the IRS, suggesting they made less money than expected. Reporting lower income than earned is tax fraud, leading to those charges. As time continued, the couple ran out of options to continue this fraud, which led to them filing for bankruptcy, ultimately casting a bright light on their fraudulent activity.
Distinguishing Tax Evasion From Tax Avoidance
While there was a host of financial crimes committed by the Chrisleys, their main issues ultimately came down to using fake tax information to obtain loans from financial institutions and then providing different false tax information to the taxing authorities, leading to them committing tax evasion.
While even the IRS states that taxpayers are not required to pay more taxes legally than what the tax law explicitly specifies, they also cannot provide false information to lower their tax liabilities. This distinction often leads to taxpayers’ confusion when assessing the difference between tax avoidance and tax evasion.
Tax avoidance occurs when taxpayers lower their tax liability via a deduction or credit. For instance, a taxpayer can buy a home by borrowing money and receive a mortgage interest itemized deduction. This deduction was passed into law by Congress to increase incentives for home ownership. While this activity results in the home owning taxpayer having a lower tax liability than a taxpayer who does not own a home, it is not considered evasion because it was legally obtained. Similar tax deductions exist for donating to charitable organizations, excessive healthcare expenses, paying state and local income taxes, among others.
Taxpayers also might have legal tax avoidance by way of tax credits. Credits also lower a taxpayer’s tax liability. However rather than reducing their taxable income, a tax credit lowers the taxes owed themselves. Because of this, tax credits are even more valuable than tax deductions. Common tax credits include the child tax credit, the lifetime learning tax credit, and the earned income tax credit.
This decrease in tax liability via legal deductions and credits stands in stark contrast to the activities of Todd and Julie Chrisley, who only had lower tax liability because they underreported their income. Because their behavior was deliberate and careless, it was deemed tax evasion, which contributed significantly to the harsh sentence they faced. Furthermore, the Chrisley’s also faced sweeping criticism by impeding the investigation process by not timely filing tax returns in many years as well as not cooperating with the tax authority.
Tax Enforcement During Trump’s Second Term
Trump pardoning Todd and Julie Chrisley for their crimes sends a message about the administration’s stance on tax enforcement. In particular, the Chrisley family is connected with Trump as Todd and Julie’s eldest daughter, Savannah, was among the limited speakers during the 2024 Republican National Convention. This connection parallels Trump’s pardoning of Paul Walczak for his tax crimes. According to The New York Times, Walczak’s mother attended a $1 million dinner supporting Trump.
While it is not unusual for the President to issue pardons, especially when the individuals are connected with the President, the timing of this one is quite unusual as it took place during the first few months. Presidents typically reserve these pardons for the end of their term as the pardoning activity has the potential to signal policy and preferences that can impact their administration.
In this case, Trump has signaled his willingness to overlook a relatively straightforward tax fraud among a celebrity couple, plausibly (and potentially solely) due to their support for him. According to Kiplinger, this action can signal Trump’s willingness to condone these actions and activities to his supporters. A Forbes contributor suggests that Trump’s decisions erode confidence in the tax system.
The IRS continues to have a questionable future. According to The Washington Post, Trump has effectively removed any funding increases the agency was supposed to receive from the Inflation Reduction Act of 2022. Bloomberg reports that Trump’s proposed $9.8 billion budget for the IRS would be approximately 20% lower than last year’s budget of $12.3 billion. As the funding for the IRS continues to be under fire, these actions to pardon wealth tax cheats are yet another piece of the puzzle, creating the image that tax enforcement among wealthy taxpayers may be of low importance.
Read the full article here
