Texas man charged in apparent first-ever criminal crypto capital gains tax case

February 9, 2024

The Internal Revenue Service has made it clear for years. It wants to know about your digital assets. Ignore the crypto question, now at the top of more tax forms, at your own tax peril.

And if you go further and don't report taxable digital transactions, the Department of Justice (DoJ) will get involved.

That's the case for a Texas man, who this week was indicted on charges of filing false tax returns and structuring cash deposits to avoid currency transaction reporting requirements.

Bitcoin was a component in both charges.

Notably, the federal prosecution involving digital transactions is historic, at least in the judgment of a man who once led the tax agency's criminal investigators.

Unreported bitcoin sales: According to the DoJ's announcement of the indictment, the Austin man allegedly filed false tax returns between 2017 and 2019 that underreported or did not report the sale of approximately $3.7 million worth of bitcoin in which he had substantial gains.

IRS Criminal Investigation (IRS CI) and Texas Attorney General agents who are investigating the case allege that the Texan in 2017 used those crypto currency sale proceeds to purchase a residence. He then allegedly filed a false tax return for that tax year that inflated the price he originally paid for the bitcoin, thereby underreporting his capital gain from the sale.

Federal officials contend the failure to report crypto transactions continued.

Investigators say that in 2018 and 2019, the Texas man allegedly sold bitcoin for more than $650,000, and allegedly failed to report those crypto sales when he filed tax returns for those years.

The indictment handed down Feb. 6 by a federal grand jury in Texas also charges that the Lone Star State resident, after selling some of his bitcoin to an individual in exchange for cash, made a series of bank deposits of the cash in amounts less than $10,000 each to avoid triggering currency transaction reporting requirements.

First ever says former IRS CI chief: Don Fort, who was the head of IRS CI from 2017 to 2020, touted the "big news out of the Western District of Texas" on his LinkedIn account, calling it apparently "the very first legal source crypto tax case EVER!"

Fort, who now is director of investigations at the law firm Kostelanetz LLP, noted that early criminal crypto cases focused on money laundering or illegal source tax cases. But, he added, he knew it was only a matter of time before the agency brought crypto cases that had tax charges associated with them.

That time seems to have arrived.

"Today is a big day, as we seem to have crossed the line to legal source tax cases," added Fort. "While the IRS continues to debate thresholds and reporting requirements for crypto, one thing not up for debate is the requirement to report capital gains."

Tax Felon Friday: While this crypto charges item is part of the ol' blog's Tax Felon Friday feature, the DoJ (and I) want to emphasize that any indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

If the Austin man facing the crypto currency criminal charges is convicted, he could face a maximum penalty of five years in prison for each structuring count, and three years in prison for each false tax return count.

If you want to catch up on all sorts of tax miscreants, the ol' blogs' special Tax Felon Friday page is a good place to start.

And if you want even more tax crime posts, notably those that were published long before I gave them a special end-of-week feature tag, you can peruse the, what else, tax crimes category. You'll find this post at the top of that collection right now, so just scroll down for more.

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