IRS secures first crypto tax fraud conviction, setting legal precedent

For the first time, the IRS has successfully prosecuted a case of tax fraud solely involving crypto.

The U.S. Internal Revenue Service has won a major victory, setting a legal precedent in the fight against crypto-related tax fraud. In December 2024, Frank Richard Ahlgren III was sentenced to two years in prison and fined $1.1 million for evading taxes on his crypto sales. In a Jan. 27 blog post , blockchain analytics firm Chainalysis said the ruling marks the first time the tax watchdog has secured a conviction for tax fraud solely involving digital assets.

“Beyond the IRS, the case also represents a significant win for the Department of Justice and justice ministries worldwide.”

Chainalysis

The case is tied to Ahlgren buying a $4 million house in Park City, Utah, using profits from his Bitcoin ( BTC ) sales. The New York-headquartered firm says Ahlgren’s methods were pretty elaborate: he sold millions in BTC using tools like CoinJoin mixers, Wasabi Wallet, peer-to-peer services, and even structured cash deposits to hide earnings. He also adjusted his tax filings to show a lower value for his crypto.

However, investigators still tracked down Ahlgren’s crypto transactions across multiple wallets and exchanges. Per Chainalysis, his wealth came from a 2015 purchase when he bought 1,366 BTC for about $676,170.

“Although Ahlgren thwarted the authorities for a time from performing some calculations, his conviction and sentencing illustrate how on-chain tax evasion is traceable and has real-world consequences.”

Chainalysis

Meanwhile, Senator Ted Cruz from Texas is getting ready to challenge a new IRS crypto rule using the Congressional Review Act. The rule forces decentralized crypto exchanges to collect customer info, like names and addresses, and send tax forms to users.

As crypto.news reported earlier , Cruz, along with Senators Cynthia Lummis, Bill Hagerty, and Tim Sheehy, is pushing to repeal what Republicans call the “midnight rules” of the Biden administration. These regulations were finalized late last year, and the CRA gives Congress until mid-May to overturn them. The CRA allows resolutions to bypass Senate filibusters, needing only majority votes in both chambers to pass.