First Crypto Tax Evasion Case: Texas Investor Sentenced for Failing to Report $4 Million in Capital Gains
In a landmark case, the United States Department of Justice (DOJ) has criminally charged an early Bitcoin investor from Austin, Texas, for failing to report cryptocurrency capital gains. Frank Richard Ahlgren III is the first individual to face charges under this provision, with a staggering $4 million worth of cryptocurrencies at stake.
Background on Ahlgren’s Crypto Holdings
Ahlgren has been invested in Bitcoin since 2011 and made a significant purchase of 1,366 BTC on the crypto exchange Coinbase in 2015 when the price was trading under $500. Over the years, he reinvested his earnings from Bitcoin sales into real estate.
The Scheme to Conceal Crypto Sales
In October 2017, Ahlgren sold approximately 640 BTC at an average market price of $5,807.53, generating a substantial capital gain. However, rather than reporting this income on his tax return, he allegedly filed a false federal income tax return that substantially inflated the cost basis of the bitcoins. This deceitful tactic allowed him to underreport his true capital gain from the sale of Bitcoin.
Concealment of Further Crypto Sales
The investigation revealed that Ahlgren did not report more than $650,000 worth of Bitcoin sales in 2018 and 2019. Furthermore, he attempted to conceal the movement of his funds through multiple wallet transfers, crypto mixers, and in-person cash transactions.
Background on Crypto Mixers
In May 2014, Ahlgren had blogged about his knowledge of mixers as a way to add anonymity to Bitcoin transactions. It appears that he applied this concept to his own dealings, attempting to conceal the transfer of funds.
Tax Evasion and Consequences
The tax loss from Ahlgren’s criminal conduct was over $1 million. His decision to underreport crypto capital gains and attempt to conceal the transfer of funds earned him a two-year sentence in prison. This conviction has set a precedent as the first criminal tax evasion prosecution centered solely on cryptocurrency.
Government Response
Acting Deputy Assistant Attorney General Stuart Goldberg of the Justice Department’s Tax Division emphasized that Ahlgren’s actions were a deliberate attempt to evade taxes, which ultimately led to his sentencing. The Internal Revenue Service (IRS) and the Department of Justice have demonstrated their commitment to tracking crypto activity and holding individuals accountable for tax evasion.
Expertise in Tracking Crypto Activity
Acting Special Agent in Charge Lucy Tan of the IRS Criminal Investigation Houston Field Office noted that Ahlgren’s actions were misguided, believing his cryptocurrency transactions were untraceable. However, her team has the expertise and tools to track both crypto and fiat activity, ensuring that those who attempt to evade taxes will be held accountable.
Sentence and Restitution
In addition to serving a two-year prison sentence, Ahlgren has been ordered to serve one year of supervised release and pay $1.1 million in restitution to the United States government.
The Importance of Reporting Crypto Gains
The DOJ’s statement emphasizes that all taxpayers are required to report any sale proceeds and gains or losses from the sale of cryptocurrency on their tax return. This case highlights the importance of accurately reporting crypto activity to avoid severe consequences, including imprisonment and significant fines.
Conclusion
Ahlgren’s conviction serves as a warning to those who believe they can evade taxes by concealing their crypto transactions. The government’s commitment to tracking and prosecuting crypto-related crimes demonstrates that individuals will be held accountable for failing to report capital gains from cryptocurrency sales.