What Is an “Affirmative Act” Constituting Tax Evasion?

Tax evasion is about more than simply owing the IRS money. The mere fact you lack the funds to pay your tax bill is not itself a crime. But if you commit an “affirmative act” intended to avoid payment of a tax, then you can be charged with criminal tax evasion. This includes any conduct that is likely to conceal funds from or otherwise mislead the government.

Federal Appeals Court Upholds Ex-Reality TV Stars’ Convictions

A recent high-profile example of criminal tax evasion involved Todd and Julie Chrisley, the former stars of the USA Network reality television series Chrisley Knows Best. In 2022, a federal jury convicted the Chrisleys and their former accountant on multiple counts of tax evasion, bank fraud, and conspiracy. The trial court subsequently sentenced Todd Chrisley to 12 years in federal prison, Julie Chrisley to 7 years in prison, and the accountant to 3 years in prison. The court also ordered the Chrisleys to pay over $17.2 million in restitution to the government.

The crux of the government’s tax evasion case revolved around a corporation, 7C’s Productions, the Chrisleys formed during the production of their television show. 7C was what is commonly known in the entertainment industry as a “loan-out company.” Essentially, a performer creates a loan-out company to “loan out” their services to a production company. The production company then pays the loan-out company rather than the performer directly.

Here, the Chrisleys established 7C as a loan-out company owned solely by Julie Chrisley. The production company then paid 7C for the services of both Chrisleys. According to the evidence introduced by the government at trial, the Chrisleys used this arrangement to conceal Todd Chrisley’s personal income from the IRS. (The Chrisleys filed separate tax returns, so Julie was not responsible for Todd’s individual tax debts.) Additional evidence indicated the Chrisleys simply used 7C’s accounts as their personal bank accounts, even though Todd Chrisley never reported any of his income paid to 7C.

At trial, and again on appeal, the Chrisleys argued there was no “affirmative act” supporting their tax evasion conviction. They maintained that the money in the 7C accounts only represented the corporation’s income, not Todd Chrisley’s personal income. They argued it was no different than a law firm collecting money for work performed by one of its lawyers. That money does not belong to the individual lawyer until they receive a distribution from the firm.

The 11th Circuit rejected that analogy. Unlike a partner in a law firm, who does not have personal control over the firm’s accounts, here the evidence showed that Todd Chrisley retained access and control over 7C’s accounts at all times, even though his wife was listed as the sole owner. In short, Todd Chrisley “avoids tax liability by skipping the step of transferring his income from the 7C’s account to his own account while treating the 7C’s account as if it is his own account.”

Contact the Joshi Law Firm Today

Corporations provide important protection of an owner’s personal assets from civil liability. But they are not a shield that will let you avoid paying any personal income taxes you may owe. If you get into trouble with the IRS on this or a similar issue and need representation from a qualified Orlando tax fraud attorney, call the Joshi Law Firm, PA, today at 844-GO-JOSHI or contact us online to schedule a free initial consultation.

Source:

scholar.google.com/scholar_case?case=2779077254119101354