An early Bitcoin investor was convicted of tax fraud for failing to report Bitcoin capital gains; in addition to a two-year prison sentence, he was ordered to disclose his private key so that U.S. officials could unlock Bitcoin currently valued at approximately $124 million.
Convicted for failing to report Bitcoin capital gains
Frank Richard Ahlgren III is the first American to be convicted of tax-related crimes involving cryptocurrency. He pleaded guilty last September for falsely reporting capital gains from the sale of $3.7 million in Bitcoin on his tax return.
According to court documents and statements, Frank Richard Ahlgren III submitted false tax returns from 2017 to 2019, underreporting or failing to report Bitcoin sale transactions valued at $4 million, from which he made substantial profits. All taxpayers are required to report any sale proceeds and any gains or losses resulting from the sale of cryptocurrencies such as Bitcoin on their IRS tax returns.
Ahlgren was an early investor in Bitcoin. He purchased about 1,366 Bitcoins in 2015, when each Bitcoin was valued at less than $500. In October 2017, Ahlgren sold approximately 640 Bitcoins for about $5,807.53 each, totaling $3.7 million. Subsequently, Ahlgren submitted a false tax return for 2017 to the IRS, significantly inflating the cost basis of his Bitcoins, thereby underreporting the capital gains he made from the sale of Bitcoins.
In 2018 and 2019, Ahlgren sold more than $650,000 worth of Bitcoin but failed to report any amounts on his tax return.
The IRS determined that Ahlgren's actions resulted in more than $550,000 in tax losses, ultimately imposing a judgment of $1 million and a two-year prison sentence.
Court orders the surrender of the private key
According to Bloomberg, U.S. District Judge Robert Pitman ruled on Monday that Frank Richard Ahlgren III must surrender his private key and storage devices, while also disclosing all of his cryptocurrency accounts.
The prosecutor stated in a request that Ahlgren's property "cannot be seized by ordinary physical means" and requested restrictions on the movement of any virtual currency based on a court order, while also seeking access to the private key to ensure that it could not be moved by others, as the virtual currency would be irretrievable if the private key were lost or destroyed.
Without prior court approval, Ahlgren cannot transfer or sell any virtual currency assets, but he may spend "normal monthly living expenses."
Digital assets are considered property and must be reported accurately.
For U.S. tax purposes, digital assets are considered property, and the income must be taxed. This includes any digital assets received or the ownership of digital assets sold or disposed of, regardless of whether it generated taxable gains or losses, which must be reported to the IRS annually.
This case is the first in the U.S. to result in a conviction for falsely reporting cryptocurrency capital gains, requiring not only repayment of underreported taxes but also additional penalties and a two-year prison sentence. Is this intended to serve as a warning to others?
This article discusses how failing to accurately report cryptocurrency taxes led to the sentencing of an early Bitcoin investor and the surrender of his private key, originally appearing in ChainNews ABMedia.
