An Austin, Texas, man has been sentenced to two years in prison for underreporting capital gains from the sale of $3.7 million in Bitcoin, the first criminal tax evasion prosecution centered entirely on cryptocurrencies.
Frank Richard Ahlgren III filed false tax returns between 2017 and 2019. According to court documents and court statements, they failed to report or underreported $4 million worth of Bitcoin sales.
The U.S. Department of Justice’s Office of Public Affairs pointed out that Algren was an early investor in Bitcoin and purchased Bitcoin as early as 2011. In 2015, he purchased 1,366 Bitcoins using the cryptocurrency exchange Coinbase. In October 2017, he sold 640 Bitcoins and used the proceeds to buy a house in Park City, Utah.
However, Ahlgren lied to his accountant and submitted a false summary of profits and losses from Bitcoin sales. He claimed that he purchased Bitcoin at a higher price than the actual price. His 2017 federal income tax return documented a "significantly overstated" cost basis, according to the Justice Department.
Ahlgren conspired to conceal his Bitcoin sales—sales he failed to report on his 2018 and 2019 tax returns—by using multiple wallets and exchanging Bitcoin for cash in person. In May 2014, he also published an article about mixed coins on his blog, also to hide his capital gains.
"Frank Algren III made millions of dollars from buying and selling Bitcoin, but instead of paying the taxes he knew he was owed, he lied about much of his earnings to his accountants and attempted to hide another portion of his profits through sophisticated techniques designed to obscure his transactions on the Bitcoin blockchain," said Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Department of Justice's Tax Division. "His conduct earned him a two-year prison sentence."
"This case marks the first criminal tax evasion prosecution centered entirely on cryptocurrency," said Lucy Tan, Acting Special Agent in Charge of the IRS-Criminal Investigation's Houston Field Office, adding: "Because cryptocurrency prices are high, the temptation to not pay taxes on their sales is also great. Avoid the temptation and stay out of federal prison."