The indictment of a Texas taxpayer for failing to report profits from cryptocurrency transactions on his federal income tax return likely signals the beginning of an increased IRS focus on taxpayers who don’t include the transactions on their returns. Additional indictments against other taxpayers are expected to follow after the IRS’s November 2022 announcement that the agency’s criminal investigations unit was ready to bring charges in hundreds of cryptocurrency cases.
While the IRS has been warning taxpayers of the possible consequences of not reporting the gains from cryptocurrency transactions for years, the indictment is believed to be the first time a taxpayer has been prosecuted solely for failing to report the transactions. Other prosecutions for unreported cryptocurrency transactions also involved crimes like theft or money laundering.
The taxpayer, Frank Ahlgren III, was indicted Feb. 7 in the U.S. District Court for the Western District of Texas on charges related to underreporting capital gains of roughly $4 million by inflating his cost basis in Bitcoin he sold. Ahlgren allegedly sold approximately $3.7 million of Bitcoin in 2017 to purchase a home in Park City, Utah. He was reported to have filed a false 2017 federal income tax return inflating the price he paid for the Bitcoin, which resulted in his underreporting of his capital gains from the sale.
Ahlgren is also accused of not reporting the sale of more than $650,000 in Bitcoin on his 2018 and 2019 tax returns and depositing the proceeds of some of his sales in amounts of less than $10,000 to avoid currency reporting requirements.
IRS Adding Crypto Experts
Another indication that the IRS is increasing its enforcement efforts related to cryptocurrency reporting is its recent hiring of two private sector experts in the field. Sulolit “Raj” Mukherjee and Seth Wilks have been hired as executive advisors to help lead IRS efforts on building service, reporting, compliance and enforcement programs focused on digital assets.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.