Author | TaxDAO
With the rapid rise of the crypto market, regulatory risks represented by tax compliance have become increasingly prominent. In April 2024, Roger Ver, known as the "Bitcoin Jesus," was arrested in Spain after being accused by the U.S. Internal Revenue Service (IRS) of tax evasion of $48 million. For months, the progress of the case has always been a concern for practitioners in the crypto asset industry, and has further attracted the crypto industry's attention to tax compliance.
As Bitcoin broke through $100,000, the "Bitcoin Jesus" case also saw new progress last week. Roger Ver's legal team filed a motion on December 4, 2024, asking the court to dismiss the IRS's tax evasion charges against Roger Ver. Currently, he is still in Spain awaiting an extradition decision from the United States. In this article, TaxDAO will review the "Bitcoin Jesus" case and provide compliance advice on related tax risks.
1. The story behind the Bitcoin Jesus case
1.1 Who is Bitcoin Jesus?
Roger Ver was born in Silicon Valley in 1979 and is a well-known libertarian and anarchist. In 1999, he founded Memory Dealers during college, which mainly resold computer parts. After that, he dropped out of school and started running the company full-time. With his keen business sense, he earned his first million dollars at the age of 24.
In 2011, Roger Ver began to invest in Bitcoin and announced that his company, Memory Dealers, would accept Bitcoin payments, becoming the world's first company to support Bitcoin payments. Since then, Roger Ver has continued to purchase and receive large amounts of Bitcoin through his personal capacity and his companies, and has become the CEO of Bitcoin.com and the founder of the Bitcoin Foundation. He actively promoted the application and value of Bitcoin, promoted its early popularity, and accumulated great influence in the field of crypto assets, so he was dubbed "Bitcoin Jesus" by the media and the crypto community.
1.2 Why did the IRS sue Bitcoin Jesus?
In 2014, Roger Ver obtained citizenship of the Federation of St. Kitts and Nevis and renounced his U.S. citizenship shortly thereafter. According to U.S. tax law, individuals who renounce their citizenship are required to fully declare the capital gains of their global assets, including the holdings and fair market value of Bitcoin. The U.S. Internal Revenue Service believes that Roger Ver concealed and underreported the value of his personal assets before renouncing his citizenship. After renouncing his citizenship, he obtained and sold approximately 70,000 Bitcoins from companies in the United States under his control, earning nearly $240 million in revenue, thereby evading at least $48 million in taxes.
In this regard, the IRS mainly made two charges: First, Roger Ver failed to comply with the exit tax regulations. When renouncing his U.S. citizenship, Roger Ver underreported the actual number of bitcoins held by him and the company he controlled, concealed the relevant transactions, and evaded this part of the tax obligation. Second, Roger Ver violated his tax obligations as a non-U.S. tax resident. After renouncing his U.S. citizenship, Roger Ver obtained and sold bitcoins from the U.S. companies he controlled in 2017, earning huge income. Although Roger Ver renounced his U.S. citizenship, because his company was located in the United States, Roger Ver transferred the bitcoins held by the company in the United States to his name without reporting such income, thus evading tax obligations.
2. Can Bitcoin Jesus “redeem” himself?
In the United States, tax evasion is considered a felony, punishable by up to five years in prison and a fine of up to $100,000 (for individuals) or $500,000 (for companies). According to U.S. precedent, in order to successfully charge Roger Ver with tax evasion, prosecutors generally need to prove three elements: (1) prove that Roger Ver has a large tax debt; (2) has the intention to evade taxes; and (3) actively engages in tax evasion.
First, for the existence of a large amount of tax debt, the prosecutor needs to trace back and calculate the total amount of taxes that Roger Ver has not paid, and prove that the debt has reached the standard of "substantial". In Roger Ver's case, the $48 million in unpaid taxes currently proposed by the prosecutor has obviously exceeded the "substantial" standard recognized in judicial practice, and it is difficult for Roger Ver's legal team to evade the establishment of this requirement through vague defense.
Secondly, for the intention to evade taxes, the prosecution needs to prove that Roger Ver's tax evasion was not accidental or negligent, but was subjectively intentional. For example, proving that Roger Ver provided false information to appraisers and tax preparers, and failed to disclose key information about Bitcoin transactions, can serve as evidence of such intention. For this subjective element, there is still room for the prosecution and defense to play a game.
Finally, for active tax evasion, the prosecution needs to prove that Roger Ver took active measures to conceal assets, underreport income, or deceive tax authorities. From the indictment, the prosecution listed a series of specific actions by Roger Ver, such as transferring funds to offshore accounts, concealing Bitcoin transactions, and exaggerating asset expenditures, all of which meet the definition of "tax evasion" under US tax law. If the authenticity and legality of the evidence related to these actions are not a problem, it can be used as a favorable weapon for the prosecution to successfully accuse.
It is reported that Roger Ver's legal team has submitted a motion to a federal judge on December 4, 2024, hoping that the Trump administration will fulfill its promise to end strict crypto regulation and withdraw the criminal charges of tax evasion against Roger Ver. They argue that the US tax law's guidance on crypto assets is unclear, making it difficult for taxpayers to understand their legal responsibilities. At the same time, the legal team accused the government of misconduct in the prosecution process, including selective quoting and interpreting relevant communications out of context, and concealing evidence that may be beneficial to the defendant. In addition, they also believe that the prosecutors are suspected of selective law enforcement in this case, and have not fairly held other similar cases accountable, but only "killing chickens and monkeys" against public figures such as Roger Ver.
The court has now scheduled a hearing for February 2025 to consider the motion.
In general, Roger Ver's chances of winning the case may be affected by many factors, including legal and political factors. On the plus side, his legal team argued that the tax law's tax provisions on crypto assets are unclear, which adds to the argument that there are loopholes in the tax system for the defense. They also accused prosecutors of selective enforcement, which could undermine the legitimacy of the IRS prosecution if sufficient evidence is provided. At the same time, it is particularly noteworthy that the Trump administration intends to end the strict regulation of crypto assets, and this political attitude may bring a turning point in the case. However, the disadvantage is that the prosecutors already have a lot of specific evidence, including $48 million in unpaid taxes and a series of tax evasion records, and these behaviors are likely to meet the statutory requirements of tax evasion. If the court remains politically neutral, then how to ultimately assess subjective intent and the legitimacy of evidence may become the key to the verdict.
3. Crypto tax risks from the Bitcoin Jesus case
The Bitcoin Jesus case has sounded the alarm for tax compliance in the crypto industry, especially for individual investors in crypto assets. The strengthening of international cooperation and the advancement of technological means are continuously reducing the space for investors to evade taxes. For investors in the crypto industry, tax compliance has become a key issue that cannot be avoided.
3.1 International tax cooperation strengthens, offshore tax avoidance becomes more difficult
Roger Ver renounced his U.S. citizenship and became a citizen of St. Kitts and Nevis in an attempt to circumvent U.S. tax obligations using an offshore identity, a common method of tax avoidance.
However, with the strengthening of international tax cooperation, it has become much more difficult to evade taxes through offshore identities. Currently, more than 100 countries and regions have pledged to join the CRS (Common Reporting Standard) system to automatically exchange financial tax information, including the British Virgin Islands, Cayman Islands, Bermuda, Bahamas, Cook Islands and Marshall Islands, which are considered "tax havens".
Take the United States as an example. In recent years, the IRS has gradually attached importance to the supervision of such tax avoidance methods and tracked down such behavior through international cooperation. When offshore companies or individuals use offshore identities to avoid taxes, if they still have significant economic activities in the United States (such as company operations and customer sources), they may be deemed by the IRS and other tax authorities to be subject to tax obligations. At the same time, if high-net-worth investors store their assets in offshore wallets or transfer them to jurisdictions that have not signed tax cooperation agreements (such as certain tax havens) for transactions, they may also trigger the overseas asset reporting obligations of their countries. For example, the FATCA Act in the United States requires the reporting of global account assets, and failure to comply with this provision may result in fines or even criminal charges.
3.2 On-chain tracing technology upgrades, limiting tax evasion through hidden transactions
For high-net-worth Bitcoin investors like Roger Ver, whether capital gains tax is truthfully declared when selling large amounts of assets is a focus of tax authorities.
Some high-net-worth investors may use on-chain anonymity technology or privacy coins (such as Monero and Zcash) to conceal transactions, but with the advancement of on-chain tracking technology, the risk of this strategy has increased significantly. Advances in technology have made transactions on the blockchain more transparent, and some tax authorities are able to directly track on-chain data and analyze the flow of funds. At the same time, some jurisdictions have begun to cooperate with blockchain analysis companies to further restrict tax avoidance operations using crypto assets.
In addition, some investors may also try to reduce tax disclosure and payment obligations by diversifying their assets through complex transaction structures or multiple wallets. However, this practice can easily be identified by the tax authorities as intentional tax evasion, which in turn leads to legal risks. For example, if assets are transferred to multiple wallets or complex cross-border transactions are used to conceal the actual source of income, if discovered, not only will the investor have to pay back taxes, but he or she may also face fines or even criminal charges.
4. Tips and suggestions from TaxDAO
Despite the lessons learned from Roger Ver and others, some cryptoasset investors may underestimate the tax authorities’ efforts to track and enforce the law on cryptoassets. Cryptoassets are decentralized, but this does not mean that investors can evade tax supervision. If investors fail to do a good job of tax compliance, they are likely to face back taxes, fines, or even criminal prosecution. In order to ensure transaction compliance and avoid tax risks, investors in the cryptoasset field should pay attention to:
First, face up to tax responsibilities and enhance compliance awareness. Taxation is not only a legal responsibility, but a qualified tax return can also serve as proof of the legitimacy of the source of assets. Both individual investors and companies should abandon the misunderstanding that "decentralization means no taxation". Paying taxes in accordance with the law not only reduces legal risks, but also enhances the public and regulators' trust in their operations and financial status.
Second, strengthen tax planning and management to prevent unexpected risks. Individual investors should develop the habit of regularly auditing assets and income, record all transactions and income data, ensure timely and accurate tax returns, plan the payment of capital gains tax and income tax in advance, and avoid facing additional pressure due to unexpected returns or investigations. For enterprises, a systematic tax management framework needs to be established, including transparent tracking of token distribution records, income details, and cross-border capital flows, to ensure that every step of tax compliance is rigorous and standardized.
Third, pay close attention to policy developments and dynamically adjust investment strategies. Tax policy in the crypto-asset space is complex and rapidly changing, with significant differences in regulations across jurisdictions. Investors should keep abreast of the latest developments in new tax regulations and international cooperation agreements, and assess their potential impact on their investment behavior. For example, adjusting asset allocation or transaction structure according to policy changes can effectively avoid policy risks and ensure compliance.
Fourth, rely on professional support to avoid policy misunderstandings. For high-net-worth investors or institutions involved in complex cross-border transactions, it is wise to work with professionals who are familiar with crypto asset tax regulations. Professional teams can provide comprehensive guidance on tax responsibilities and policy requirements to help investors identify potential risks in advance. Especially when involved in multiple jurisdictions, professional advice can help avoid compliance errors caused by policy misunderstandings.
Through the above suggestions, investors can reduce the legal risks caused by tax non-compliance and achieve sustainable development within the compliance framework. With the trend of gradual improvement of policies and increasingly stringent supervision, it is a necessary choice for every crypto asset investor to establish tax compliance awareness as soon as possible.
