A federal grand jury has indicted a Texas man with filing false tax returns and structuring cash deposits to avoid currency transaction reporting requirements.
According to the indictment, between 2017 and 2019, Frank Richard Ahlgren III, of Austin—also known as “Paco”—filed false tax returns that underreported or did not report the sale of $4 million worth of bitcoin in which he had substantial gains.
Taxpayers must report any sale proceeds and gains or losses from the sale of cryptocurrency, such as bitcoin, on a tax return.
In 2017, Ahlgren allegedly used the proceeds from selling approximately $3.7 million of Bitcoin
While cryptocurrency is decentralized and offers some measure of privacy, it is not necessarily anonymous. Notably, bitcoin transactions are recorded on a public blockchain—basically, an electronic public ledger that keeps track of all bitcoin transactions. All records on the blockchain—the blocks—are publicly available. And once those blocks have been added and confirmed, they cannot be changed.
To conduct transactions on a blockchain, you use a crypto address—sometimes called a public key. The address, which acts like your bank account number, consists of a string of more-than-26-character-long, case-sensitive letters and numbers.
Bitcoin addresses are controlled through the use of a private key—think of a private key like a password or PIN. This combination of a public and private key creates a digital signature, which means that only the person who holds the private key can authorize the transfer of bitcoin from that address to another address.
Exchanges may share data with the IRS, FBI, and other federal agencies—even if it’s not voluntary. In addition, IRS Criminal Investigations has agents whose job it is to follow the money, including connecting bitcoin addresses to users. And, beginning in 2025, new regulations will make it easier for the IRS to obtain information from brokers. That means that the IRS can often identify owners—and sellers—of cryptocurrency.
Taxes and Cryptocurrency
The IRS considers cryptocurrency a capital asset. In 2014, the agency issued guidance to taxpayers, making it clear that capital gains rules apply to any gains or losses of cryptocurrency, provided they are convertible into cash. In simple terms, this means that capital gains rules apply to gains or losses.
That means you must report the sales proceeds and any gains or losses on your tax return when you sell cryptocurrency, including bitcoin. You calculate your gain or loss by subtracting your basis—or cost—from your sales proceeds.
You’ll report your gains or losses to the IRS by filing Form 8949, Sales and Other Dispositions of Capital Assets, and carrying that information to your Schedule D, Capital Gains and Losses. You’ll attach Form 8949 and Schedule D to your Form 1040. Importantly, your Form 1040 is signed under penalties of perjury.
According to court documents, on or about October 23, 2017, Ahlgren sold approximately 640 bitcoins worth approximately $3.7 million. He used those proceeds to purchase a house in Park City, Utah. But when Ahlgren filed his 2017 tax return, the feds allege that he reported a capital gain of just $21,167.
In 2018, Ahlgren sold approximately 38 bitcoins worth roughly $398,000 to purchase gold coins and made additional sales in 2019. Again, prosecutors say he failed to report all the proceeds from selling bitcoin and other cryptocurrencies.
According to court documents, Ahlgren took it a step further. To escape detection, in 2019 and 2020, prosecutors say that he made numerous cash deposits in individual amounts of $10,000 or less to avoid bank reporting requirements. Making cash deposits of less than $10,000 is not illegal—it only violates the law when the transactions are structured to evade those reporting requirements. The practice is often referred to as “structuring.”
IRS Criminal Investigation and the Texas Office of Attorney General are investigating the case.
At this stage, the indictment only reflects allegations. If he is found guilty, Ahlgren faces a maximum penalty of five years in prison for each structuring count and three years in prison for each false return count.