First man in the US sent to prison for hiding bitcoin profit

For the first time, a man in the US has been sentenced to prison for cryptocurrency tax evasion.

Frank Richard Ahlgren III, from Austin, Texas, has been sentenced to two years in prison after falsely underreporting his capital gains, the US Department of Justice said. Between 2017 and 2019, Ahlgren sold $3.7 million in bitcoin (BTC), according to the announcement.

In addition to the prison sentence, he will need to pay more than $1 million in restitution to the US.

The department stressed that all taxpayers must report gains or losses from the sale of crypto assets on their tax returns.

According to Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division, the sentenced Texas man lied to his accountant about the extent of a large portion of his gains.

Additionally, he "sought to conceal another chunk of his profits through sophisticated techniques designed to obscure his transactions on the bitcoin blockchain," Goldberg was quoted as saying. Meanwhile, Acting Special Agent in Charge Lucy Tan of IRS-Criminal Investigation’s Houston Field Office stressed that her team at IRS Criminal Investigation can track financial activity, whether it involves fiat currency, such as dollars, or cryptocurrency.

The department claims that Ahlgren started buying BTC in 2011, when it was trading for mere cents, before rallying to almost $30 and then crashing to a few USD per BTC. Meanwhile, in 2015, on the Coinbase exchange, he acquired around 1,366 bitcoins, while the highest price that year was around $496.

After selling 640 BTC at a price of around $5,808, Ahlgren bought a house in Park City, Utah. According to prosecutors, he primarily used BTC acquired in 2015 for this sale. Ahlgren then told his accountant that he had bought the bitcoins at prices much higher than he actually did, and, in 2017, he filed a false federal income tax return that substantially inflated the cost basis of the bitcoins. In doing so, he underreported his true capital gain.

Moreover, he failed to report BTC sales from 2018 and 2019, when he netted more than $650,000, and attempted to conceal his transactions.

According to the Justice Department, this was done by moving his bitcoins through multiple wallets, meeting an individual in person to exchange bitcoins for cash, and using mixers, which help strengthen cryptocurrency users’ privacy.

At the time of writing, BTC trades at around $104,650 and is up 15% in a month and 148% in a year.