Frank Richard Ahlgren III, a resident of Austin, Texas, has been sentenced to a two-year prison term for filing false tax returns that misrepresented the capital gains from selling $3.7 million worth of bitcoin, as reported by the United States Department of Justice (DOJ) today.
According to the DOJ, Ahlgren was an early investor in Bitcoin, having started purchasing the cryptocurrency in 2011. In 2015, he acquired 1,366 bitcoins through his Coinbase account, with the price of bitcoin reaching approximately $495 per coin that year. By October 2017, the value of Bitcoin had soared, leading Ahlgren to sell 640 bitcoins for $5,807 each, resulting in a total gain of $3.7 million. He used the proceeds from the sale to purchase a home in Park City, Utah.
However, when filing his tax return for 2017, Ahlgren misrepresented his gains by inflating the cost basis of his bitcoin purchases, falsely claiming that he had acquired the coins at prices higher than the actual market rates. This misrepresentation significantly reduced the reported capital gains on his tax return.
Between 2018 and 2019, Ahlgren sold additional bitcoins worth over $650,000 but failed to report these transactions on his tax returns altogether. In an effort to conceal his gains, he utilized various techniques such as transferring funds through multiple wallets, exchanging bitcoin for cash in person, and using mixers to anonymize his bitcoin transactions.
The DOJ highlighted that Ahlgren’s actions resulted in a tax loss exceeding $1 million. Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division stated, “Frank Ahlgren III earned millions buying and selling bitcoins. But instead of paying the taxes he knew were due, he lied to his accountant about the extent of a large portion of his gains and sought to conceal another chunk of his profits through sophisticated techniques designed to obscure his transactions on the bitcoin blockchain. That conduct today earned him a two-year sentence.”
U.S. District Court Judge Robert Pitman sentenced Ahlgren to two years in prison, followed by one year of supervised release. Additionally, Ahlgren was ordered to pay $1,095,031 in restitution to the U.S. government.
Acting Special Agent in Charge Lucy Tan of IRS-Criminal Investigation (IRS-CI)’s Houston Field Office commented, “Ahlgren will serve time because he believed his cryptocurrency transactions were untraceable. This case demonstrates that no one is above the law. My team at IRS Criminal Investigation has the expertise and tools to track financial activity, whether it involves dollars, pesos, or cryptocurrency. This case marks the first criminal tax evasion prosecution centered solely on cryptocurrency. As the prices for cryptocurrency are high, so is the temptation to not pay taxes on its sale. Avoid the temptation and avoid federal prison.”
The case of Frank Ahlgren III serves as a reminder that tax evasion, regardless of the form of currency involved, is a serious offense with legal consequences. It underscores the importance of accurately reporting financial transactions and complying with tax obligations to avoid legal repercussions.