Texas Investor Ordered to Surrender Crypto Assets in Landmark Tax Fraud Case

In a groundbreaking decision, a Texas federal court has ordered Frank Richard Ahlgren III, an early Bitcoin investor, to hand over his cryptocurrency keys, accounts, and access codes as part of a restraining order following his conviction for tax fraud. Ahlgren, who falsely reported his capital gains on Bitcoin sales, was sentenced in December 2024 to two years in prison and ordered to pay restitution of approximately $1.1 million to the U.S. government.

The Tax Fraud Case

Ahlgren's legal troubles stem from his failure to report over $3.7 million in Bitcoin sales between 2017 and 2019. In 2015, at a time when Bitcoin was priced around $465, Ahlgren purchased approximately 1,366 Bitcoin using Coinbase. He later sold half of that Bitcoin for a profit of $3.7 million at around $5,800 per Bitcoin, but falsely inflated the cost basis in his 2017 tax return, thereby reducing his reported capital gains.

Subsequent Bitcoin sales, totaling over $650,000 between 2018 and 2019, were also not reported. Prosecutors accused Ahlgren of using multiple wallets, in-person transfers, and mixers to hide the details of these transactions and evade taxes, resulting in tax losses exceeding $1 million.

Court Order and Crypto Seizure

On January 6, 2025, U.S. District Judge Robert Pitman issued a restraining order requiring Ahlgren, as well as any associates or family members, to disclose and surrender all private keys, seed phrases, public keys, passphrases, and physical devices used to store his cryptocurrency. This includes any accounts associated with Bitcoin, Bitcoin Cash, Bitcoin Gold, Ether, and Litecoin.

The order also prohibits Ahlgren and his associates from transferring or concealing any of his cryptocurrency without prior approval from the court. The only exception is for withdrawals used to cover "normal monthly living expenses." This order will remain in effect until Ahlgren fulfills his restitution obligations or until further court action.

Legal Repercussions

Ahlgren, who pleaded guilty to filing a false tax return in September 2024, is set to serve two years in prison, along with one year of supervised release. His case has significant implications, as it marks the first criminal tax evasion prosecution focused solely on cryptocurrency, highlighting the growing scrutiny of digital assets in the eyes of U.S. authorities.

Lucy Tan, the acting special agent in charge of the IRS-Criminal Investigation’s Houston Field Office, referred to the case as a landmark in cryptocurrency-related tax enforcement. The case underscores the U.S. government’s determination to ensure that cryptocurrency transactions are fully reported and taxed according to the law.

Conclusion

The case of Frank Richard Ahlgren III represents a significant moment in the intersection of cryptocurrency and the U.S. tax system. As authorities continue to crack down on cryptocurrency-related tax fraud, this case serves as a stern warning to others who may attempt to evade taxes by hiding digital assets. Ahlgren's conviction and the court’s decision to seize his crypto assets illustrate the growing legal and financial risks for individuals who fail to comply with tax regulations in the rapidly evolving world of digital currency.