According to Law360, Federal prosecutors' first public indictment of an individual who underreported the capital gains from a nearly $4 million legal sale of bitcoin indicates that authorities have opened the floodgates for more criminal cases that deal purely with undisclosed gains on legitimate cryptocurrency transactions.
The criminal allegations against Frank Ahlgren III that federal prosecutors brought in a Texas federal court are novel in that unlike in previous cryptocurrency cases, the tax evasion allegations in Ahlgren's case did not stem from criminal activities such as money laundering, theft, human trafficking, illicit drugs, online black marketplaces, terrorism or defrauding investors.
Instead the indictment, which was made public Feb. 7, 2024, sought to go after taxes for unreported gains from legal transactions, such as an individual or business intentionally not reporting on their tax returns their substantial capital gains from selling stocks.
The Case Confirms What Internal Revenue Service Criminal Investigation Chief Jim Lee Has Said For Months, The Unit
Has Seen A Surge Of Such Cases And Hundreds Of Them
Will Soon Be Made Public.
In the 10-page indictment, the U.S. Department of Justice accused Ahlgren of purposely failing to report the capital gains from bitcoin sales on his 2017, 2018 and 2019 tax returns, which, if true, would amount to false declarations under penalties of perjury.
Lee Has Repeatedly Said That Half Of IRS CI's Active
Crypto Caseload Now Involves Classic Tax Evasion,
Compared To Three Years Ago, When A Vast Majority Of The Digital Asset Transactions Were Tied To Money Laundering.
In unlike the previous cases McAfee, Elmaani, Zhong and other cryptocurrency cases, the four counts against Ahlgren do not link the tax evasion allegations to other criminal sources, such as money laundering, defrauding investors and theft.
Instead, the DOJ accused Ahlgren of splitting large sums of his earnings from bitcoin into individual bank deposit amounts of under $10,000 to avoid scrutiny from law enforcement. Such transactions — known as structuring are prohibited under Title 31, U.S. Code Section 5324(a) and can trigger investigations.
The indictment also said Ahlgren used $3.7 million in proceeds from selling approximately 640 bitcoins in 2017 to purchase a house in Park City, Utah.
If the case ends up in trial, it will be interesting to see whether Ahlgren's defense attorneys can persuade the federal government that his conduct amounts to a civil or administrative infraction, rather than a crime.
The IRS treats digital assets such as convertible virtual currency, cryptocurrency stablecoins and non-fungible tokens as property. The same general tax principles governing property are applied to taxable income from digital asset transactions.
Individuals and businesses must answer a digital asset question and report all income tied to the assets in several tax filings, including Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return. The question also appears on other forms, such as Form 1041, U.S. Income Tax Return for Estates and Trusts, and Form 1065, U.S. Return of Partnership Income.
The IRS has also been issuing John Doe summonses to cryptocurrency companies, such as Coinbase, and financial institutions to produce information on taxpayers who may have failed to report to the agency, and pay taxes on, digital asset transactions.
Many in the tax bar, including myself, believe that this Indictment will result in many amended Form 1040 tax returns being filed.
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Read more at: Tax Times blog
