TAXLITIGATOR – Tax Controversy (Civil & Criminal) Report

In a milestone for cryptocurrency taxation, the recent federal sentencing of Frank Richard Ahlgren III for charges involving the willfully filing of a false tax return marks a pivotal moment in legal-source cryptocurrency income tax enforcement. Hochman Salkin Toscher Perez PC attorneys Sandra R. Brown and Philipp Behrendt shared their insights with Tax Notes, underscoring the implications of this landmark case.

Ahlgren, an early adopter of bitcoin, faced charges for intentionally underreporting capital gains from a $3.7 million bitcoin sale in 2017. The case highlights the challenges and nuances of reporting digital asset transactions in compliance with IRS regulations.

On December 16, 2024, Nathan Richman posted his article “First Traditional Crypto Tax Sentence Draws Attention” for Tax Notes. In his article, he cites Sandra R. Brown and Philipp Behrendt.

Sandra R. Brown observed that the case involved a number of badges of fraud—such as misrepresentation of basis and attempts to obscure transactions—which parallel traditional tax evasion scenarios involving assets like stocks. This comparison underscores the increasing alignment of cryptocurrency enforcement with established tax principles.

Philipp Behrendt emphasized the pitfalls of misjudging the transparency of blockchain technology. Misstating the “basis is problematic, particularly in a transparent market like bitcoin,” he remarked, pointing to the advanced tracing tools employed by IRS Criminal Investigation to uncover discrepancies as was evidenced in Ahlgren’s filings.

The case illustrates how digital assets are reshaping the landscape of tax enforcement, combining traditional fraud indicators with novel investigative strategies. Tax experts predict a rise in cryptocurrency-related prosecutions, these cases set critical precedents for taxpayers and practitioners alike.

The attorneys at Hochman Salkin Toscher Perez PC remain at the forefront of navigating these complexities, and offering unparalleled expertise in defending against tax allegations in the rapidly evolving digital asset space.

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For more information, please contact Sandra R. Brown at brown@taxlitigator.com

For more information please contact Philipp Behrendt at behrendt@taxlitigator.com