Reviewing the entire process of the arrest of "Bitcoin Jesus": Why did the IRS suddenly take action after 10 years?

Author: TaxDAO

With the rapid rise of the crypto market, regulatory risks represented by tax compliance have become increasingly prominent. In April 2024, Roger Ver, known as the "Bitcoin Jesus," was accused by the IRS of tax evasion amounting to $48 million and was arrested in Spain. For months, the progress of this case has kept the nerves of crypto asset industry practitioners on edge and has further heightened the crypto industry's focus on tax compliance.

As Bitcoin surpassed $100,000, the "Bitcoin Jesus" case also saw new developments last week. Roger Ver's legal team filed a motion on December 4, 2024, requesting the court to dismiss the IRS's tax evasion charges against him. He is currently awaiting extradition decisions from the U.S. in Spain. TaxDAO will review the "Bitcoin Jesus" case in this article and provide compliance advice regarding related tax risks.

1. The Background of the Bitcoin Jesus Case

1.1 Who is the Bitcoin Jesus?

Born in 1979 in Silicon Valley, Roger Ver is a well-known libertarian and anarchist. In 1999, while still in college, he founded Memory Dealers, a company primarily engaged in reselling computer parts. He dropped out of school to run the company full-time and, with his keen business acumen, earned his first million dollars by the age of 24.

In 2011, Roger Ver began investing in Bitcoin and announced that his company, Memory Dealers, would accept Bitcoin payments, becoming the first company in the world to support Bitcoin payments. Since then, Roger Ver has continuously purchased and received large amounts of Bitcoin both personally and through his companies, becoming the CEO of Bitcoin.com and a founder of the Bitcoin Foundation. He actively promoted the application and value of Bitcoin, driving its early adoption and accumulating significant influence in the crypto asset field, earning him the title of "Bitcoin Jesus" from the media and the crypto community.

1.2 Why did the IRS sue the Bitcoin Jesus?

In 2014, Roger Ver obtained citizenship in Saint Kitts and Nevis and soon after renounced his U.S. citizenship. According to U.S. tax law, individuals who renounce their citizenship must fully report their global capital gains, including their holdings of Bitcoin and its fair market value. The IRS believes that Roger Ver concealed and underreported the value of his personal assets before renouncing his citizenship and that after renouncing, he obtained and sold approximately 70,000 Bitcoins from companies he controlled in the U.S., generating nearly $240 million in income, thereby evading at least $48 million in taxes.

In this regard, the IRS has primarily made two allegations: first, that Roger Ver did not comply with exit tax regulations. When renouncing his U.S. citizenship, Roger Ver underreported the actual amount of Bitcoin held by him and his controlled companies, concealing relevant transaction details and evading tax obligations. Second, that Roger Ver violated his tax obligations as a non-U.S. tax resident. After renouncing his U.S. citizenship, Roger Ver obtained and sold Bitcoin from his U.S.-based companies in 2017, generating substantial income. Although Roger Ver renounced his U.S. citizenship, since his companies are based in the U.S., he failed to report income after transferring the Bitcoins held by the U.S. companies to his name, thus evading tax obligations.

2. Can the Bitcoin Jesus "Redeem" Himself?

In the U.S., tax evasion is considered a serious crime, punishable by up to 5 years in prison and fines of up to $100,000 (individual) or $500,000 (corporation). According to U.S. precedents, to successfully charge Roger Ver with tax evasion, the prosecution generally needs to prove three elements: (1) that Roger Ver has a substantial tax debt; (2) that there was intent to evade taxes; (3) that he actively engaged in tax evasion.

First, regarding the existence of substantial tax debt, the prosecution needs to trace and calculate the total amount of unpaid taxes owed by Roger Ver and argue that this debt meets the "substantial" standard. In Roger Ver's case, the $48 million in unpaid taxes currently proposed by the prosecution clearly exceeds the "substantial" standard recognized in judicial practice, making it difficult for Roger Ver's legal team to evade this element through ambiguity defenses.

Second, regarding the intent to evade taxes, the prosecution must prove that Roger Ver's actions were not accidental or due to negligence, but rather were done with subjective intent. For example, proving that Roger Ver provided false information to assessors and tax preparers, as well as failing to disclose key information about Bitcoin transactions, could serve as evidence of such intent. There remains room for negotiation between the prosecution and defense regarding this subjective element.

Finally, regarding actively engaging in tax evasion, the prosecution needs to prove that Roger Ver took active measures to conceal assets, underreport income, or deceive tax authorities. From the indictment, the prosecution lists a series of specific actions taken by Roger Ver, such as transferring funds to offshore accounts, concealing Bitcoin transactions, and exaggerating asset expenditures, all of which fit the definition of "tax evasion" under U.S. tax law. If the authenticity and legality of the evidence related to these actions are not in question, they could serve as a favorable weapon for the prosecution.

Reports indicate that Roger Ver's legal team filed a motion with a federal judge on December 4, 2024, hoping the Trump administration would fulfill its promise to end harsh crypto regulations and dismiss the criminal tax evasion charges against Roger Ver. They argue that U.S. tax law lacks clear guidance on crypto assets, making it difficult for taxpayers to understand their legal responsibilities. Additionally, the legal team accuses the government of misconduct during the prosecution, including selectively quoting and misrepresenting relevant communications and concealing evidence that could be beneficial to the defendant. They also believe the prosecution has engaged in selective enforcement, failing to hold others in similar cases accountable while targeting public figures like Roger Ver as a "warning."

Currently, the court has scheduled a hearing for February 2025 to review the motion.

Overall, the likelihood of Roger Ver's case succeeding may be influenced by various factors, including legal and political considerations. On the favorable side, his legal team argues that the tax law's provisions regarding crypto assets are unclear, which adds to the argument that there are loopholes in the tax system. They also accuse the prosecution of selective enforcement, and if they can provide sufficient evidence, it may weaken the legitimacy of the IRS's charges. At the same time, it is particularly noteworthy that the Trump administration intends to end harsh regulations on crypto assets, which could bring a turning point to the case. However, the unfavorable factors include the prosecution's possession of substantial specific evidence, including the $48 million in unpaid taxes and a series of records of tax evasion, which likely meet the statutory elements of tax evasion. If the court remains politically neutral, how it ultimately assesses subjective intent and the legality of the evidence may become the key to the judgment.

3. Insights on Crypto Tax Risks from the Bitcoin Jesus Case

The Bitcoin Jesus case serves as a wake-up call for the crypto industry regarding tax compliance, particularly for individual investors in crypto assets. The strengthening of international cooperation and advancements in technology are continuously narrowing the space for investors to evade taxes. For investors in the crypto industry, tax compliance has become an unavoidable key issue.

3.1 Strengthened International Tax Cooperation, Increased Difficulty of Offshore Tax Evasion

Roger Ver's renunciation of U.S. citizenship and acquisition of citizenship in Saint Kitts and Nevis was an attempt to use an offshore identity to evade U.S. tax obligations, a common method of tax evasion.

However, with the strengthening of international tax cooperation, the difficulty of evading taxes through offshore identities has significantly increased. More than 100 countries and regions have committed to joining the CRS (Common Reporting Standard) system for the automatic exchange of financial tax information, including jurisdictions considered "tax havens" such as the British Virgin Islands, Cayman Islands, Bermuda, the Bahamas, Cook Islands, and the Marshall Islands.

For example, in recent years, the IRS has gradually begun to focus on regulating such tax evasion methods and has been pursuing these behaviors through international cooperation. Offshore companies or individuals using offshore identities for tax evasion may be deemed by the IRS and other tax authorities to have tax obligations if they still engage in significant economic activities in the U.S. (such as company operations or customer sourcing). Additionally, if high-net-worth investors store assets in offshore wallets or transfer them to jurisdictions that have not signed tax cooperation agreements (such as certain tax havens) for trading, they may trigger overseas asset reporting obligations in their home countries. For instance, the U.S. FATCA law requires the reporting of global account assets, and failure to comply may result in fines or even criminal charges.

3.2 Upgraded On-Chain Tracking Technology, Limited Options for Concealing Transactions to Evade Taxes

For high-net-worth Bitcoin investors like Roger Ver, whether they accurately report capital gains tax during large-scale asset sales is a key concern for tax authorities.

Some high-net-worth investors may use on-chain anonymity technologies or privacy coins (such as Monero, Zcash) to conceal transactions, but with advancements in on-chain tracking technology, the risks of such strategies have significantly increased. Technological advancements have made transactions on the blockchain more transparent, allowing some tax authorities to directly track on-chain data and analyze the flow of funds. Additionally, some jurisdictions have begun collaborating with blockchain analysis companies to further restrict tax evasion operations using crypto assets.

Moreover, some investors may attempt to reduce tax disclosure and payment obligations by using complex trading structures or multiple wallets to disperse assets. However, such practices can easily be deemed by tax authorities as intentional tax evasion, leading to legal risks. For example, transferring assets to multiple wallets or using complex cross-border transactions to obscure the actual source of income, if discovered, could result in not only the need to pay back taxes but also fines or even criminal charges.

4. TaxDAO's Tips and Recommendations

Despite the lessons from figures like Roger Ver, some crypto asset investors may underestimate the tax authorities' tracking and enforcement capabilities regarding crypto assets. While crypto assets have decentralized characteristics, this does not mean that investors can evade tax oversight. If investors do not ensure tax compliance, they may face back taxes, fines, or even criminal prosecution. To ensure transaction compliance and avoid tax risks, investors in the crypto asset field should pay attention to:

First, acknowledge tax responsibilities and enhance compliance awareness. Paying taxes is not only a legal obligation; a qualified tax return can also serve as proof of the legitimacy of asset sources. Whether individual investors or companies, they should discard the misconception that "decentralization means no taxes." Complying with tax laws not only reduces legal risks but also enhances public and regulatory trust in their operations and financial status.

Second, strengthen tax planning and management to prevent unexpected risks. Individual investors should develop a habit of regularly auditing their assets and income, recording all transaction and income data, and ensuring timely and accurate tax filings. They should plan ahead for capital gains tax and income tax payments to avoid additional pressure from sudden filings or investigations. For companies, a systematic tax management framework should be established, including records of token distribution, income details, and transparent tracking of cross-border fund flows, ensuring that every step of tax compliance is rigorous and standardized.

Third, closely monitor policy dynamics and adjust investment strategies dynamically. Tax policies in the crypto asset field are complex and change rapidly, with significant differences in regulations across jurisdictions. Investors should stay informed about the latest developments in tax regulations and international cooperation agreements and assess their potential impact on their investment behaviors. For example, adjusting asset allocation or trading structures based on policy changes can effectively mitigate policy risks and ensure compliance.

Fourth, rely on professional support to avoid misunderstandings of policies. For high-net-worth investors or institutions involved in complex cross-border transactions, collaborating with professionals familiar with crypto asset tax regulations is a wise choice. Professional teams can provide comprehensive guidance on tax responsibilities and policy requirements, helping investors identify potential risks in advance. Especially when dealing with multiple jurisdictions, professional advice can help avoid compliance errors arising from policy misunderstandings.

By following these recommendations, investors can reduce legal risks arising from tax non-compliance while achieving sustainable development within a compliance framework. As policies gradually improve and regulations become increasingly stringent, establishing a tax compliance awareness early on is a necessary choice for every crypto asset investor.