An Austin, Texas, man received a two-year sentence for falsely underreporting capital gains earned from selling $3.7 million in bitcoin — marking the first criminal tax evasion prosecution centered entirely on cryptocurrency.

The false tax returns were filed by Frank Richard Ahlgren III between 2017 and 2019. They did not report or underreported the sale of $4 million worth of bitcoin, according to court documents and statements made in court.

The United States Department of Justice's Office of Public Affairs notes that Ahlgren was an early investor in bitcoin, purchasing it as early as 2011. He used the crypto exchange Coinbase to purchase 1,366 bitcoin in 2015. He sold 640 bitcoin in October 2017 and used the proceeds to buy a house in Park City, Utah.

However, Ahlgren lied to his accountant by submitting a false summary of the gains and losses from his bitcoin sales. He claimed he purchased bitcoin at a higher price than he actually did. According to the DoJ, his 2017 federal income tax return recorded a "substantially inflated" cost basis.

Ahlgren made a concerted effort to conceal his bitcoin sales — which he did not report on his 2018 and 2019 tax returns — by using multiple wallets and exchanging bitcoin for cash in person. He also blogged about mixers in May 2014, which he also used to conceal his capital gains.

“Frank Ahlgren III earned millions buying and selling bitcoins, 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," Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division said. "That conduct today earned him a two-year sentence," he added.

“This case marks the first criminal tax evasion prosecution centered solely on cryptocurrency," Acting Special Agent in Charge Lucy Tan of IRS-Criminal Investigation’s Houston Field Office said, adding: "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."

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