Early Bitcoin investor jailed for unreported crypto gains in $4M BTC sale

An early Bitcoin investor from Austin, Texas, became the first person criminally charged for failing to report crypto capital gains, in a case involving about $4 million worth of cryptocurrencies.

According to the United States Department of Justice (DOJ), Texas-based Bitcoin (BTC) investor Frank Richard Ahlgren III “falsely underreported the (realized) capital gains” earned from selling Bitcoin worth $3.7 million between 2017 and 2019. The DOJ said in a Dec. 12 report:

“All taxpayers are required to report any sale proceeds and gains or losses from the sale of cryptocurrency, such as Bitcoin, on a tax return.”

Ahlgren has invested in Bitcoin since 2011. He purchased 1,366 BTC on the crypto exchange Coinbase in 2015 when Bitcoin was trading under $500. He sold about 640 BTC in October 2017 at an average market price of $5,807.53 and reinvested the $3.7 million in real estate. 

Authorities found discrepancies in Ahlgren’s 2017 federal income tax return, the report noted:

“Ahlgren then filed a false 2017 federal income tax return that substantially inflated the cost basis of the bitcoins, thereby underreporting  his true capital gain from his sale of bitcoins.”

Bitcoin investor stops reporting BTC sales for two more years

Additionally, Ahlgren did not report more than $650,000 worth of Bitcoin sales in 2018 and 2019. According to the DOJ, he attempted to conceal the movement of his funds through multiple wallet transfers, crypto mixers and in-person cash transactions. The DOJ added:

“Indeed, in May 2014, Ahlgren had blogged about his knowledge of mixers as ways to add anonymity to Bitcoin transactions. In total, the tax loss from Ahlgren’s criminal conduct was over $1 million.”

Related: Roger Ver claims US targets him for Bitcoin advocacy, not taxes

Acting Deputy Assistant Attorney General Stuart Goldberg of the Justice Department’s Tax Division noted that Ahlgren’s decision to underreport crypto capital gains and attempt to conceal the transfer of funds “earned him a two-year sentence.”

Crypto tax evader gets two years in prison and a $1.1 million fine

The two-year prison sentence became “the first criminal tax evasion prosecution centered solely on cryptocurrency,” said Acting Special Agent in Charge Lucy Tan of the Internal Revenue Service’s Criminal Investigation Houston Field Office. She also said her team has the expertise and tools to track crypto and fiat activity.

“Ahlgren will serve time because he believed his cryptocurrency transactions were untraceable.”

In addition to the two-year prison sentence, Ahlgren has been ordered to serve one year of supervised release and to pay $1.1 million in restitution to the United States government.

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