Two recent criminal tax cases, one crypto focused and one less so, show how digital assets are making their way into the normal legal process involving criminal tax enforcement.
The United States Department of Justice announced, in April 2024, that Roger Keith Ver, known by his followers as “Bitcoin Jesus,” was indicted on fraud and tax-related charges, including mail fraud, tax evasion, and filing false tax returns. The indictment alleged that Ver, a former California resident who expatriated to St. Kitts and Nevis in 2014, concealed assets and provided false information during the expatriation process to evade taxes, including an “exit tax” on his Bitcoin holdings. The press release from the Department of Justice claimed that Ver allegedly sold tens of thousands of bitcoins without reporting or paying taxes on distributions from his U.S.-based companies causing a $48 million loss to the IRS. The United States sought Ver’s extradition from Spain to stand trial. On December 3, 2024, Ver filed a motion to dismiss and on January 13, 2025 the government filed its opposition. This is one of the first glimpses into cryptocurrency enforcement post-election where a friendlier regulatory and enforcement landscape has been promised.
On January 16, 2025, a Maryland attorney was indicted by a federal grand jury on 22 charges, including tax evasion, assisting in the preparation of false tax returns, failure to pay taxes, and making false statements to mortgage lenders. Thomas C. Goldstein retired from a prominent United States Supreme Court practice, according to an ABA Journal article, in 2023 indicating that the change in the Supreme Court made it difficult to fight for the little guy. Now he faces charges that, if proven beyond a reasonable doubt, could result in decades in prison. Most of the allegations in the indictment involve omitting legal fee income, misreporting gambling winnings and debts, or are related to alleged “sham employment relationships” with several women the government claims were involved in intimate relationships with Goldstein. Amid the scandalous claims involving gambling, infidelity, and duffel bags of cash the indictment also claims Goldstein conducted 280 cryptocurrency transactions but answered “no” on his tax return about making any virtual currency transactions.
Can The DOJ Finally Reach Bitcoin Jesus?
Bitcoin and American Flag
In his motion to dismiss, Ver (a.k.a. Bitcoin Jesus), claimed the exit tax itself violated the constitution, that the legal standards involving cryptocurrency’s tax treatment were unconstitutionally vague, and that the evidence used in the indictment was incomplete and that full versions show that Ver made every attempt to properly follow the tax laws. Many tax advisors, including this author, have struggled to answer difficult questions regarding digital assets when the limited IRS guidance doesn’t address the issues involved. Both the indictment and the motion to dismiss outline that Ver did, in fact, seek legal and tax advice during a time when little guidance was provided by the government.
In its opposition the governments first argument is for the court to ignore the motion to dismiss entirely until Ver is extradited under the “Fugitive Entitlement Doctrine.” Essentially, if you’re a fugitive you are not entitled to use of the courts for pre-trial claims such as Ver’s motion to dismiss. Since Ver didn’t actually flee the United States because of criminal prosecution (i.e. he had already expatriated years before) the government claims “constructive flight” and other equitable arguments to avoid a decision on the motion to dismiss. Perhaps assuming these equitable arguments might fail, the government addresses the merits as well. First, the United States claims that not all counts involve the exit tax so even if the exit tax is determined to be unconstitutional other counts remain. The government’s opposition then attacks Ver’s constitutional claims.
Ver’s constitutional arguments includes reliance on the recently decided Supreme Court ruling in Moore v. United States. According to Ver, unrealized appreciation in the value of an asset cannot be taxed as income and because the exit tax taxes this unrealized appreciation it is unconstitutional. The government responds that realization doesn’t determine constitutionality, and such a strict requirement would call into question numerous other taxes based on constructive sales. Ver’s remaining constitutional arguments rely on violations of due process and the vagueness of tax laws involving cryptocurrency. While there are legitimate complaints about lack of guidance and the hardships caused by the decision to expatriate, it remains to be seen if those concerns are sufficient to pass the legal standards required to make a law unconstitutional. At the very least, the arguments raise the questions about whether the government can use the threat of criminal proceedings on tax laws that are arguably lacking the required guidance for analysis on the proper tax treatment. A hearing on the motion to dismiss is currently set for February 10, 2025.
Will Crypto Become Common in Criminal Tax Cases?
Unlike Ver, Goldstien is not alleged to be an early adopter of cryptocurrency. Although the indictment includes allegations from as far back as 2016, the claims regarding financial interests in cryptocurrency are only alleged for his 2020 and 2021 tax returns. Also, in Counts 13 and 14 of the indictment, it is alleged that Goldstien aided and assisted in the preparation of a false and fraudulent tax return by answering “No” to the question asking if he had received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency. Previous criminal indictments for misreporting cryptocurrency transactions, like the indictment against Ver, involve earlier tax years when this question was not included on an individual tax return (IRS Form 1040).
The question regarding transactions in cryptocurrency first appeared on the IRS Form 1040 in 2019 but was included in Schedule 1 for that tax return. The 2020 version of IRS Form 1040, the first tax year at issue in the indictment, moved the question to a much more prominent spot, right after entering your name and address. A similar question about whether taxpayers had interests in foreign bank accounts was also contained in a Schedule to the Form 1040 and subsequent litigation called into question whether the question was affirmatively not answered or just overlooked. For criminal tax cases, this makes proving the key attribute of willfulness more problematic. Presumably, the Internal Revenue Service (IRS), knowing about this previous problem with foreign bank accounts, decided to move the virtual currency question to its more conspicuous place on the return.
The trading of major cryptocurrencies increased dramatically in 2020 just as the individual tax return question on cryptocurrency transactions took its new prominent placement. Many more taxpayers now hold cryptocurrency investments as well. Therefore, this criminal tax charge may become more common in individual criminal tax cases. Whether this particular charge gets plead away among the more prominent charges remains to be seen. However, it will be interesting to see if the government tries to push this allegation as the criminal case proceeds or in any subsequent press releases for its deterrent effect on other taxpayers with cryptocurrency holdings.
