First US Crypto Tax Evasion Convict Sentenced to Two Years in Prison

Frank Richard Ahlgren III, an early Bitcoin (BTC) investor from Austin, Texas, has been charged with failing to report cryptocurrency capital gains of approximately $4 million. The case marks the first criminal tax evasion prosecution solely focused on cryptocurrency, noted Lucy Tan, Acting Special Agent in Charge at the IRS Criminal Investigation Houston Field Office.

Discrepancies in Tax Filings

Court documents revealed that the US Department of Justice (DOJ) highlighted the requirement that taxpayers disclose the proceeds and any gains or losses from cryptocurrency transactions, including Bitcoin, on their tax returns. However, Ahlgren misreported his earnings from Bitcoin sales totaling $3.7 million in 2017, significantly underestimating his taxable capital gains.

Authorities discovered discrepancies in his 2017 tax filings, noting that Ahlgren inflated the cost basis of his BTC holdings to understate the actual gains. Further investigations revealed that he failed to report over $650,000 from Bitcoin sales in 2018 and 2019.

Ahlgren, who began investing in Bitcoin in 2011, sold his holdings between 2017 and 2019 for about $4.35 million. However, according to the DOJ, he misrepresented these figures to his accountant and on his tax returns, resulting in a tax loss exceeding $1 million.

Efforts to Conceal Funds

To conceal the movement of his funds, Ahlgren employed methods such as wallet transfers, crypto mixers, and in-person cash transactions. Ahlgren’s knowledge of mixers for anonymizing BTC transactions was evident as early as May 2014, when he discussed the topic on his blog.

Additionally, Ahlgren used his cryptocurrency profits to purchase a house, further complicating his financial disclosures and raising questions about the sources of his funds, given the discrepancies in his reported income.

Legal Consequences

Due to his deliberate underreporting and attempts to hide his financial activities, Ahlgren was sentenced to two years in prison. In addition to the prison term, he has been ordered to pay the US government approximately $1.1 million in restitution and will serve an additional year of supervised release.

Stuart Goldberg, Acting Deputy Assistant Attorney General for the DOJ’s Tax Division, emphasized that Ahlgren’s actions not only caused significant tax losses but also warranted a prison sentence. This serves as a reminder of the importance of tax compliance for crypto investors.