A federal judge has ordered an early stage Bitcoin investors to hand over encryption keys that could unlock about $124 million in crypto, marking an unprecedented move in the US government’s efforts to seize digital assets in cases of tax evasion.
According to the order issued Monday by U.S. District Judge Robert Pitman, Ahlgren must disclose all private keys and identify any devices he used to store crypto, e.g hardware wallets.
The order extends beyond just wallet access — Ahlgren and any associates are prohibited from transferring or hiding digital assets without court approval, although they can use money for “normal monthly living expenses.”
The order seeks to recover approximately $1 million in restitution following Ahlgren’s December ruling. The first coverage of the order appeared first Bloomberg.
Avoiding taxes with crypto? Not so fast
Last February, federal prosecutors was released a seven-count indictment against Richard Ahlgren III, also known as “Paco,” marking the first U.S. criminal tax evasion case that focused solely on crypto trading.
The Austin, Texas resident was charged with three counts of filing false tax returns and four counts of illegal structuring of cash deposits. In December last year, Ahlgren was sentenced to two years in prison in jail for falsely reporting capital gains he made selling $3.7 million worth of Bitcoin.
“(…)instead of paying the taxes he knew were owed, he lied to his accountant about the extent of a large portion of his profits,” Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division said in a DOJ press release at that time.
Ahlgren “sought to hide another portion of his profit” by using “sophisticated techniques designed to hide his transactions on the bitcoin blockchain,” Goldberg said.
The indictment details how Bitcoin transactions work, explaining that while the blockchain is public, Ahlgren allegedly tried to hide his activities through several techniques.
Decrypt have contacted the DOJ and will update this article if they respond.
Sets a precedent
What makes Ahlgren’s case groundbreaking is its focus on the deliberate manipulation of crypto cost base calculations and sophisticated attempts to hide blockchain transactions, effectively creating a playbook for the future control of crypto tax.
US regulators take more enforcement-heavy approach as Congress struggles to establish clear regulatory framework for cryptoassets, a 2024 industry review from blockchain forensics company Elliptic suggests.
At least until major crypto regulatory changes are enacted, the U.S. remains “a challenging regulatory environment for crypto market participants” due to “the lack of progress in enacting crypto-related legislation,” exacerbated by “a regulatory posture that relies heavily on enforcement actions,” it says that in the report.
