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Frank Richard Ahlgren appeared, at first, to be one of the early winners in the cryptocurrency boom. In 2015—long before Bitcoin became a household name—he purchased 1,366 Bitcoins at roughly $495 each. By October 2017, the price had surged to nearly $6,000 per coin. Ahlgren sold 640 of them for about $3.7 million and used the windfall to buy a home in Park City, Utah.
What should have been a story of good timing and financial luck instead became a cautionary tale. On December 12, 2024, Ahlgren received a 24‑month federal prison sentence and was ordered to pay $1,095,031 in restitution—the exact amount of tax he failed to report. As accounting professor Samuel Handwerger at the University of Maryland’s Robert H. Smith School of Business notes, “It should have been a success story. Instead, it became the first-ever criminal prosecution for cryptocurrency tax evasion.”
How the IRS Sees Cryptocurrency
The turning point for all crypto investors came in March 2014, when the IRS ruled that virtual currencies like Bitcoin would be treated as property—not foreign currency—for tax purposes. Handwerger explains that this means crypto functions “like a collectible or an investment property” in the eyes of the tax code. The price you pay becomes your cost basis; the price you sell for determines your gain or loss.
A simple example illustrates the point: buying one Bitcoin for $30,000 and selling it for $50,000 creates a $20,000 taxable gain. That gain belongs on Schedule D of Form 1040, just like stock or real‑estate transactions. Short-term holdings are taxed at ordinary income rates; long-term holdings receive preferential capital‑gains treatment.
But the rules create complexities that many investors overlook. Selling crypto, trading one coin for another, or even using crypto to buy goods or services can all trigger taxable events. The IRS expects every transaction to be tracked and reported.
Where Ahlgren Went Wrong
Ahlgren initially seemed to understand the stakes. After selling his Bitcoin and purchasing his Utah home, he emailed his accountant with concerns about his tax liability. His preparer advised him to make a good-faith effort to report the gain and use reasonable estimates for his cost basis.
Instead, Ahlgren made a series of choices that prosecutors later described as deliberate fraud:
- He created a spreadsheet claiming he had purchased Bitcoin at prices that never existed—some as high as $9,470 in 2015, when the real peak price that year was $495.56.
- He used mixers and joiners—software designed to obscure blockchain transaction paths.
- He sold Bitcoin for cash in peer‑to‑peer transactions and deposited the proceeds in amounts just under $10,000 to avoid bank reporting rules, a practice known as structuring.
- He ignored the explicit advice of his tax preparer, which Handwerger notes “shouts out intent,” a key element in proving fraud.
Taken together, these actions led prosecutors to argue that Ahlgren had willfully filed false tax returns. The court agreed, resulting in the first criminal conviction focused solely on cryptocurrency tax evasion.
Why Hiding Crypto Doesn’t Work
One of the striking elements of the case is how thoroughly investigators were able to reconstruct Ahlgren’s transactions. The government hired a blockchain‑analysis firm that used advanced software to trace the movement of his coins. Through a technique known as clustering, analysts linked multiple wallets and addresses back to him.
The blockchain may not display names, but it is far from anonymous. Exchanges like Coinbase require identification, and transaction patterns often reveal connections. As Handwerger puts it, “He went to such lengths to hide his transactions, yet investigators still traced nearly every Bitcoin he sold.”
New Reporting Rules Make Transparency Inevitable
Beginning with 2025 transactions, cryptocurrency exchanges and brokers must report gross proceeds to the IRS on Form 1099‑DA. Starting with the 2026 tax year (filed in 2027), they must also report cost basis for “covered securities”—crypto acquired and held with the same broker on or after January 1, 2026.
In other words, the era of unreported crypto activity is closing fast.
What Crypto Investors Should Remember
Buying cryptocurrency with dollars is not taxable. But these activities are:
- Selling crypto for dollars
- Trading one cryptocurrency for another
- Using crypto to buy goods or services
- Receiving crypto as payment for work
For anyone with unreported crypto transactions from prior years, Handwerger urges action: “Consult with a tax professional who can help you file amended returns under the voluntary disclosure program.” While back taxes, interest, and civil penalties may apply, voluntary disclosure typically avoids criminal charges—an outcome far better than Ahlgren’s two-year prison sentence and million-dollar restitution.
Ahlgren’s Case as a Warning
Ahlgren’s downfall wasn’t caused by owning cryptocurrency or even by making mistakes in record-keeping. It was caused by intentional deception. His case stands as a reminder that the IRS treats cryptocurrency like any other taxable asset—and that attempts to hide transactions are both traceable and prosecutable.
As Handwerger emphasizes, the lesson is simple: “When you tell the IRS first that you owe back taxes, before they tell you, you will generally avoid the criminal charge of tax fraud.”