An Austin, Texas man, Frank Richard Ahlgren III, has been sentenced to two years in prison for filing false tax returns that underreported the capital gains from selling $3.7 million worth of bitcoin, the United States Department of Justice (DOJ) announced today.

According to the DOJ, Ahlgren was an early Bitcoin investor who began purchasing bitcoin in 2011. In 2015, he acquired 1,366 bitcoins through his Coinbase account, a year in which the price of bitcoin peaked at approximately $495 per coin. By October 2017, Bitcoin’s value had surged, and Ahlgren sold 640 bitcoins for $5,807 each, totaling a gain of $3.7 million. He then used the proceeds to purchase a home in Park City, Utah.

However, when filing his 2017 tax return, Ahlgren misrepresented the gains by inflating the cost basis of his bitcoin purchases, claiming he had acquired the coins at prices higher than market rates. This misreporting significantly reduced the reported capital gains.

Between 2018 and 2019, Ahlgren sold additional bitcoins worth over $650,000 but failed to report these transactions on his tax returns entirely. In an attempt to conceal his gains, he transferred funds through multiple wallets, exchanged bitcoin for cash in person, and using mixers to anonymize his bitcoin transactions.

In total, the DOJ stated that Ahlgren’s actions resulted in a tax loss exceeding $1 million.

“Frank Ahlgren III earned millions buying and selling bitcoins,” said Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division “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.”

The 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.

“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,” said Acting Special Agent in Charge Lucy Tan of IRS-Criminal Investigation (IRS-CI)’s Houston Field Office. “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.”