First U.S. Crypto Tax Evasion Case: Texas Man Sentenced $4M

The U.S. Department of Justice has obtained the first criminal tax evasion conviction based solely on cryptocurrency activity.

A Texas man was sentenced to two years in prison for hiding significant gains from Bitcoin (BTC) trading between 2017 and 2019, resulting in over $1 million in unpaid taxes. The case highlights the federal government’s increasing abilities to track blockchain transactions and hold crypto users accountable for tax compliance.

Ahlgren, who started investing in BTC in early 2011, purchased 1,366 BTC through Coinbase in 2015. As of October 2017, he sold 640 BTC, making a profit of $3.7 million to purchase real estate in Utah. But when he filed his 2017 tax returns, Ahlgren increased the purchase price of BTC to severely reduce his reported capital gains.

Ahlgren sold another $650,000 in BTC from 2018 to 2019, completely exempt from capital gains tax. Ahlgren used a number of tricks designed to hide his tracks, including moving BTC between multiple wallets, exchanging cash for BTC offline, and crypto mixing services that concealed transaction details. These strategies, which aim to exploit the supposed anonymity of blockchain, have not gone unnoticed by the IRS Criminal Investigation Division.

Federal officials noted the importance of this case in that cryptocurrency is recognized as a taxable asset and subject to the same legal scrutiny as fiat currency. The DOJ and IRS have come a long way with blockchain forensic capabilities that allow them to trace digital transactions through wallets and platforms.

U.S. District Court Judge Robert Pitman sentenced Ahlgren to one year of supervised release, along with two years in federal prison. He ordered him to pay $1,095,031 in restitution to the U.S. government. “The message is clear: tax evasion, whether through the use of cryptocurrency or traditional forms of currency, will be met with all legal consequences,” said IRS Criminal Investigation Division officials.

The ruling, the first criminal tax evasion conviction involving cryptocurrencies in the United States, sets an important precedent for crypto investors who may seek to avoid paying taxes. Overall, this highlights that digital assets are under increasing scrutiny and there needs to be transparency in reporting gains from crypto.