Roger Ver, an early bitcoin investor (from approximately 2011) also known as “Bitcoin Jesus,” was just arrested in Spain based on US criminal charges. According to the indictment filed February 15, 2024 but recently unsealed, Ver has been charged with mail fraud, tax evasion, and filing false tax returns.
Ver was a former US citizen who obtained St. Kitts and Nevis citizenship on February 4, 2014. The next month he filed documentation with the US Consulate in Barbados apparently stating he had given up his US citizenship upon taking St. Kitts citizenship and also formally renouncing his US citizenship. Due to his net worth far exceeding US$2 million, Ver was a so-called “covered expatriate”. A “covered expatriate” suffers an “exit tax” on a “constructive sale” or “deemed sale” of his worldwide assets (one can view the exit tax as the price to be paid to depart the US tax system). Typically, this tax results in capital gain which must be reported on the individual’s final tax return along with Form 8854, which among other things, sets out a balance sheet declaring the individual’s worldwide assets and their fair market values.
Ver also owned 2 US companies (MemoryDealers.com, Inc., and Agilestar.com, Inc.) based in California which sold computer and networking equipment. Ver as well as these 2 companies allegedly owned millions of dollars in Bitcoins.
The criminal indictment alleges that Ver provided or caused to be provided false or misleading information to a law firm and appraiser that assisted him in preparing his final 2014 income tax return and Form 8854 related to his expatriation. These were filed with the IRS in May 2016. The information he provided concealed the true number of Bitcoins he and his 2 companies owned. In fact, they did not report that Ver personally owned any Bitcoins. As a result of the false tax returns, Ver is alleged to have caused a loss to the IRS of at least $48 million. Ver also is alleged to have filed a false 2011 gift tax return claiming he had gifted 25,000 Bitcoins to his partner.
The indictment further alleges that in 2017, Ver took possession of thousands of Bitcoins owned by his 2 California companies. In 2017, Ver was no longer a US citizen. He sold a substantial amount of the coins later that year and transferred the funds to bank accounts in the Bahamas. Ver filed a 2017 US Form 1040NR (a nonresident alien income tax return). The indictment says that Ver’s 2017 tax return (filed with the IRS December 2018) did not report any gain or pay any tax related to the corporate distribution of Bitcoins.
As a reminder to readers, since MemoryDealers and Agilestar, were US corporations Ver was still legally required to report to the IRS and pay tax on certain distributions such as dividends from these US entities. (As Ver was a non-US person, I believe the 2 US companies should have withheld 30% tax on dividend distributions to him but the ultimate tax liability is Ver’s). He also later sold Bitcoins. (As a nonresident alien it is not clear to me that the gain is taxable by the US unless Ver’s activity rose to the level of a trade or business and is treated as “effectively connected income”.).
Statute of Limitations – No Defense
There are different rules for the statute of limitations in tax cases. In the civil context, the statute of limitations does not start to run if a tax return is false or fraudulent or if there is a “willful” attempt to evade taxation. This means the IRS can look back as far as it wants. When suing for civil fraud in the real world, it is rare that the IRS goes back more than 6 years since it has a significant burden of proof to meet in fraud cases. This burden becomes more difficult to satisfy with the passage of time, and to avoid the added difficulties of proving older charges, IRS usually (but not always) limits the matter to 6 years.
Here, Bitcoin Jesus is charged criminally, and the alleged criminal acts occurred in direct relation to Ver’s US tax returns. The 2014 tax returns allegedly contained false information that he hoped would enable him to reduce his exit tax. The 2017 Bitcoin distributions from his 2 California corporations were apparently dividends and the later sale by Ver may have been transactions on which tax should have been paid. It does not matter that Ver was not a citizen at the time he allegedly gave false information or took the corporate Bitcoin distributions, or later sold the Bitcoins.
I am not a criminal tax attorney – but here is some information about the statute of limitations that applies when the Government brings a criminal indictment for the crime of tax evasion. Ver’s expatriation and the passage of time are apparently trumped by the criminal tax statute of limitations.
Criminal Tax Evasion – Revenge is a Dish Best Served Cold
The general rule is that the statute of limitations is for a six-year period for the offense of willfully attempting to evade tax. The statute of limitations commences once the tax return is filed; or from the date there was a willful failure to file the return when otherwise due. The six-year statute of limitations is found in Internal Revenue Code Section 6531(2) .
In the case of criminal tax evasion, the matter is not time barred as long as the taxpayer is indicted within six years of when the crime was completed (for example, one needs to examine when the act of “willfully attempting in any manner to evade or defeat any tax or the payment thereof” was completed). This concept of “completion” helps the Government since the statute of limitations on felony tax evasion starts to run from the later of two possible dates: when the tax return was due / filed or at the time of the taxpayer’s last affirmative act (for example, the last act of tax evasion). A later action by the taxpayer can serve as the trigger for the statute of limitations, thereby extending the time for the criminal indictment to be brought.
In Ver’s case, when was the last act of alleged tax evasion? Perhaps as late as December 2018 when it is claimed he filed a false income tax return that did not report Bitcoins he allegedly owned all along through the 2 US companies and which were not reported on the expatriation tax returns. Perhaps even later since after he sold the Bitcoins in 2017, he allegedly transferred approximately $240 million from the Bitcoin exchange accounts to bank accounts either in his name or under his control in the Bahamas and those accounts likely still hold the funds. In other words, maintaining and using these accounts were all part of the plan to reduce his exit tax liability and other income tax liabilities and can serve to delay commencement of the 6-year statute of limitations time period, making his prosecution timely.
Furthermore, Section 6531(8) provides that the criminal statute of limitations for tax crimes can be tolled when the person “is outside the United States” (and thus harder to serve with a summons). That would also fit the bill for Bitcoin Jesus. Tolling the statute means the clock “stops ticking” and IRS has longer and longer to find the offender.
Or put another way, when it comes to the IRS, the passage of time may not help. For the Taxman, revenge is indeed a dish best served cold.
Posted May 2, 2024
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