Bitcoin taxation and change of tax residence

Bitcoin taxation and change of tax residence – can obtaining a second citizenship shield cryptocurrencies from tax obligations? Roger Ver, holding a portfolio of over 130,000 bitcoins, pursued precisely this strategy in an effort to avoid settling accounts with the US Internal Revenue Service.

Second passport – economic citizenship

On the day Roger Ver renounced his United States citizenship in a cramped room at the consulate in Barbados – March 3, 2014, to be precise – bitcoin was trading at $667.76. Barbados, that Caribbean jewel east of the Lesser Antilles arc, famous for its white beaches and Mount Gay rum, was not a random choice for this ceremony. The American consulate in Bridgetown serves citizens from across the Caribbean region, including Saint Kitts and Nevis – a tiny island federation whose citizenship Ver had acquired a month earlier through an investment in the local economy. It was a carefully choreographed logistical element of a broader strategy: first, buy Caribbean citizenship; then fly to Barbados, where the nearest American consulate serving the region is located; and there formally sever ties with the country Ver considered an oppressive tax empire.

Barbados has witnessed many such scenes – wealthy Americans arriving in this tropical paradise ostensibly for the beaches but really to slip free of the I.R.S.’s grasp. Call it what it is: the island sits at the intersection of international tax-optimization routes and offshore structures. The consulate in Bridgetown is ten minutes from the beach, but Ver wasn’t there on vacation. He likely flew first class, spent a few hours handling paperwork, and returned to his life as a digital nomad shuttling between Tokyo, where his partner lived, and Saint Kitts, where his new passport offered something more valuable than beach access – access to life beyond American tax jurisdiction. At least, that was the theory.

Ver owned, at that moment, a hundred and thirty thousand bitcoin. Simple arithmetic put the value at no less than eighty-six million dollars. But Ver filed an exit-tax return showing a liability barely exceeding one million.

That discrepancy ultimately cost him fifty million dollars, several months in a Spanish jail, and a decade spent in the shadow of a federal investigation. This is a story about how a man who believed blockchain technology would make him invisible to tax authorities discovered that the same technology had become the most perfect tool of forensic accounting ever created.

The Birth of “Bitcoin Jesus”

Roger Ver was born in 1979 in Silicon Valley, in the very heart of America’s technological revolution. His path to icon status in the cryptocurrency world was, however, paved with controversy. In the early two-thousands, while running MemoryDealers.com, a company that sold Cisco networking equipment, Ver decided to solve a rodent problem in his warehouse in a manner that could most charitably be described as unconventional. He purchased forty-eight pounds of explosive materials marketed as pest-control agents and then began reselling them on eBay – without the required federal licenses, storing them in a residential apartment building, and shipping them by mail. In 2002, federal prosecutors failed to share his enthusiasm for his entrepreneurial creativity. He spent exactly nine months in federal prison.

For many people, the experience of incarceration would be a turning point leading to reflection and a change of life course. Ver drew a different conclusion: the state is inherently oppressive, all forms of government control lack legitimacy, and the only path to true freedom is escape from the jurisdiction of authority (check: how to change tax residency). This libertarian philosophy, hardened in the fires of federal prison, became the foundation of all his subsequent decisions.

In 2011, Ver discovered bitcoin. For most people, it was then an esoteric technological curiosity – a digital currency with no backing from any government or central bank, circulating among enthusiasts on Internet forums. Ver recognized something far greater in it: an ideological manifesto encoded in a cryptographic protocol. Bitcoin was money that was completely decentralized, resistant to confiscation, immune to capital controls. It was exactly what Ver had been seeking his entire life – a way to completely bypass the state system.

Ver threw himself into bitcoin with the fervor of a religious convert. His company, MemoryDealers, became one of the first businesses in the world to accept bitcoin payments, when a single coin cost less than a dollar. Ver walked the streets of San Jose handing out Bitcoin to random passersby, trying to convert them to the new faith. He funded the ecosystem’s infrastructure – BitInstant, Kraken, Blockchain.com, Ripple, BitPay – instinctively understanding that control over infrastructure determines technology adoption. The Internet began calling him “Bitcoin Jesus,” and the name stuck. Ver accepted it with pride, seeing himself as a prophet of a new religion of stateless money.

Bitcoin taxation and change of tax residence

By 2014, Ver had amassed a fortune that was impressive even by Silicon Valley standards: a hundred and thirty thousand bitcoin. He’d acquired most of them when the price oscillated between a few cents and thirty dollars. His cost basis – the price he’d paid for these assets – didn’t exceed three million dollars. But by early 2014, bitcoin was no longer a toy for technological dreamers. It had reached eight hundred dollars per coin. Ver’s unrealized capital gain exceeded a hundred million dollars.

For a libertarian like Ver, the prospect of paying millions of dollars to the U.S. government in taxes was unacceptable not just financially but ideologically. The solution seemed obvious: renounce citizenship. It’s worth explaining here that the United States is, alongside Eritrea in Africa, the only country in the world that taxes its citizens on the basis of citizenship-based taxation – an American pays taxes on global income regardless of where he lives. Eritrea is called a totalitarian state for this reason (lest we mince words: U.N. Security Council Resolution 2023, from 2011, condemned the “diaspora tax” in Eritrea and demanded an end to “extortion, threats of violence, fraud, and other illicit means of collecting taxes outside Eritrea from its nationals”), but people are afraid to speak ill of the United States aloud. Most countries use residence-based taxation, taxing only residents, or territorial taxation. Ver already lived in Japan. If he stopped being an American citizen, he would free himself from American tax jurisdiction.

The problem was that Ver needed some citizenship to function legally and financially. Enter the Caribbean countries.

Saint Kitts and Nevis, a tiny island federation in the Caribbean, has been running a Citizenship by Investment program since the nineteen-eighties. The mechanism is simple: invest a specified amount in an approved real-estate development or make a donation to the Sustainable Growth Fund, and in return you get a passport. You don’t have to live there, you don’t have to pass a language or history test, you don’t even have to visit the country more than once. You pay, you get a passport, you become a citizen.

For ultra-high-net-worth individuals like Ver, citizenship-by-investment programs are a form of geographic arbitrage. Saint Kitts has no income tax on global income for nonresidents. Antigua and Barbuda, which also runs a similar program and where Ver acquired a second Caribbean citizenship, offers similar benefits. This is the economics of citizenship reduced to its most transactional form: the state sells sovereignty, millionaires buy passports.

In February, 2014, Ver became a citizen of Saint Kitts. In March, he filed with the American consulate in Barbados a Request for Determination of Possible Loss of Citizenship, the formal document initiating the process of renouncing American citizenship. The State Department later issued him a Certificate of Loss of Nationality dated to February, 2014. Ver was free. At least, that’s what he thought.

Exit Tax: The Final Reckoning with Uncle Sam

The American Internal Revenue Code contains a provision that libertarians like Ver consider particularly perfidious: the exit tax. (We in Poland know a thing or two about this construction as well.) It’s a legal framework introduced in 2008 by the Heroes Earnings Assistance and Relief Tax Act, designed specifically to prevent high-net-worth individuals from escaping tax obligations through the simple expedient of changing citizenship at the moment when their assets have gained dramatically in value but the gain has not yet been realized.

A person logging out of Uncle Sam’s jurisdiction must first determine whether he qualifies as a “covered expatriate” – a status defined by three alternative criteria. First: net worth exceeding two million dollars on the date of departure. Second: average annual income tax over the last five tax years exceeding a specified threshold (in 2014, it was a hundred and sixty-seven thousand dollars; the amount is indexed annually for inflation). Third: lack of certification of compliance – if the taxpayer cannot certify that for the past five years he has fulfilled all his tax obligations, he automatically becomes a covered expatriate regardless of wealth.

Ver met the first criterion with room to spare. With wealth exceeding a hundred million dollars, he was a textbook example of a covered expatriate.

On the day before severing ties with the United States – which, for Ver, owing to the details of consular procedure, was March 2, 2014 – a covered expatriate is treated as if he had sold all his global assets at fair market value. The Internal Revenue Code uses the term “deemed sale” or “mark-to-market tax” – a constructive sale, a legal fiction that requires no actual transaction but generates a real tax on capital gains.

The logic is merciless: if you bought bitcoin for a dollar and it’s now worth eight hundred dollars, you have an unrealized gain of seven hundred and ninety-nine dollars. Under normal circumstances, until you sell, you don’t pay tax – the gain exists only on paper, an unrealized gain. The government waits patiently for the moment of realization, when you exchange the asset for cash and the gain becomes a realized gain subject to taxation.

But the exit tax interrupts this patience. At the moment of expatriation, the I.R.S. says: Game over. I’m treating you as if you realized all your capital gains the day before leaving my jurisdiction. I’m calculating tax on the difference between the fair market value of your assets and their adjusted basis – your cost basis. Pay now, or post security and a payment schedule spread over five years with interest.

The federal tax rate on long-term capital gains in 2014 was a maximum of twenty per cent (for the highest income brackets). Added to that was the Net Investment Income Tax – a three-per-cent additional levy on Medicare for high earners introduced by the Affordable Care Act. A total of twenty-three per cent.

Twenty-three per cent of a hundred million is twenty-three million dollars. That was the amount Ver owed the United States Treasury as exit tax. In practice, after accounting for details regarding the ownership structure of his companies and the division between personal holdings and corporate assets, the actual obligation hovered around fourteen to sixteen million dollars.

Ver decided that was too much. Not just financially but ideologically. For someone who believes that taxes are a form of theft by the state, paying fourteen million dollars at the moment of leaving the jurisdiction must have seemed like the ultimate act of oppression – a state that won’t let you go without one final, brutal reckoning.

The exit tax also requires filing an Initial and Annual Expatriation Statement, Form 8854. It’s a detailed return on which a covered expatriate must disclose his net worth on the date of expatriation, a detailed inventory of all assets with their fair market values, the calculated exit tax, and certification that for the past five years he has fulfilled all his tax obligations. The form is filed under penalty of perjury. Every item must be accurate, complete, true.

Ver decided to do it differently. And it was precisely this form – Form 8854, filed with drastically undervalued assets – that later became the central evidence in the criminal case for willful tax evasion. To put it bluntly: tax fraud.

Playing Cat and Mouse with Advisers

Ver was no amateur. He hired a prestigious law firm specializing in international tax law – let’s call it Law Firm 1. He also hired appraisers to value his companies, MemoryDealers and Agilestar, which also held significant quantities of bitcoin. He had professional legal and financial support. The problem was that Ver systematically lied to his advisers about basic facts.

The e-mail correspondence later disclosed by federal prosecutors resembles absurdist theatre. An employee of Law Firm 1 asks Ver point-blank: How many bitcoin did you own on the date you lost U.S. residency? Ver responds: “Completely hypothetically speaking, what would the consequences be if I had two hundred thousand bitcoin at the time of renunciation?”

This isn’t a question. It’s an evasion. Ver knows exactly how many bitcoin he has – after all, he controls the private keys to his wallets and can check the balance at any moment with precision to the eighth decimal place. But by answering hypothetically, he creates space for later denial. “I was only asking hypothetically; I wasn’t saying I actually had that much.”

In another e-mail, an appraiser asks Ver, “How many bitcoin are subject to valuation?” Ver responds with a question about how the appraiser would hypothetically approach valuing twenty thousand bitcoin if that number exceeded daily trading volume on exchanges. The appraiser, displaying admirable patience, repeats the question: “How many bitcoin did you own on February 4, 2014?” Ver responds that he’s “not sure” and asks another hypothetical question.

This is a classic technique that any tax adviser will immediately recognize as a red flag the size of Mount Everest: a client who desperately wants a specific legal conclusion constructs questions in such a way as to avoid giving the adviser all the facts that might challenge that conclusion. The problem is that a legal opinion based on false or incomplete facts is completely worthless. It’s not a legal opinion – it’s an accounting service based on fictional premises.

Ver also hired two different appraisers to value his companies. The first, a large international accounting firm, began asking uncomfortable questions about the exact number of bitcoin in the companies’ assets and their market valuation. Ver suspended the engagement, claiming that his expatriation was being delayed. The real reason was obvious: Appraiser 1 was too inquisitive. Ver needed someone more… flexible.

He found Appraiser 2, a one-person valuation firm. In their correspondence, Ver wrote to him, literally: “I actually have all the information you need to make this as easy as possible for you. I would just have to explain everything, and you would put your stamp on it.” This is solicitation of what American law calls professional misconduct – Ver is literally proposing that he write the valuation and the appraiser just sign it.

Ultimately, Appraiser 2 prepared valuations of MemoryDealers at two million two hundred and fifty thousand dollars and Agilestar at four million three hundred and ten thousand, including bitcoin worth a total of about one and a half million dollars. This was a drastic undervaluation. The accountant preparing documentation for the companies noticed this and sent an employee of Ver’s a question: “Are the bitcoin values fair market value as of the valuation date? The value should be: total number of bitcoin times average market price on the valuation date. If the value shown corresponds to that amount, there’s no problem; otherwise, a correction should be made.”

The employee forwarded this correspondence to Ver. Ver ignored it completely. This is no longer aggressive tax planning or creative interpretation of regulations. This is conscious retention of an error in documentation that someone just pointed out. In the language of criminal tax law, this is called direct intent.

Tax Origami, or the Art of Backdating

In April, 2016, Ver filed Form 709, United States Gift Tax Return, declaring that on November 15, 2011 – almost five years earlier – he had gifted twenty-five thousand bitcoin to his Japanese partner. This was a gift-tax return filed four years late, precisely at the moment he was preparing his expatriation return.

The date was carefully chosen. In November, 2011, bitcoin cost about three dollars per coin. Twenty-five thousand bitcoin at three dollars is seventy-five thousand dollars – a value below the threshold requiring payment of gift tax. If Ver had declared a gift from February, 2014, when bitcoin cost eight hundred dollars, the gift’s value would have been twenty million dollars and would have generated gift tax on the order of eight million.

Ver was trying to retroactively “transfer” ownership of bitcoin backward in time, creating a legal fiction that at the moment of expatriation these bitcoin no longer belonged to him, so they shouldn’t be included in the exit-tax calculation. If he had actually made this gift in 2011 and reported it on time – by the end of April, 2012 – it would have been a legal tax-planning strategy. The problem was that Ver was filing this form in 2016, declaring a gift from 2011, exactly when he was preparing his expatriation return and desperately needed to reduce his visible wealth.

Prosecutors later argued that this was a conscious falsification of documentation intended to commit tax fraud. And the most beautiful part of this story is this: the blockchain doesn’t lie. If Ver actually transferred twenty-five thousand bitcoin to addresses controlled by his partner in November, 2011, that transfer is recorded on the blockchain with a precise timestamp and can be verified. If there was no transfer, the gift return is simply forgery. You can’t retroactively rewrite blockchain history, because the blockchain is immutable and public.

Operation Close the Books: How to Erase Seventy Thousand Bitcoin with One E-mail

Ver filed his expatriation return in May, 2016, showing a tax liability barely exceeding one million dollars instead of the at least fourteen million he actually owed. He probably thought that was the end of the story. But Ver made a serious tactical error: he continued operations that left a trail on the blockchain.

In June, 2017, three years after expatriation, Ver instructed an employee to “close” the bitcoin balances in MemoryDealers’ and Agilestar’s books. That day, MemoryDealers’ books showed about fifty-eight thousand bitcoin; Agilestar’s showed about twelve thousand. The employee executed the order – the bitcoin vanished from the companies’ financial records.

In the two weeks preceding this operation, Ver transferred nearly three thousand bitcoin worth more than seven million dollars to his personal account on the Poloniex exchange. In November, 2017, Ver sold tens of thousands of bitcoin for about two hundred and forty million dollars. This was money he then transferred to bank accounts in the Bahamas.

The legal problem was fundamental. After Ver’s expatriation, MemoryDealers and Agilestar automatically transformed from S corporations into C corporations – a change resulting from the fact that Ver ceased to be a U.S. resident. At that moment, the bitcoin belonging to the companies were corporate assets. Ver, as a former owner and sole shareholder, couldn’t simply remove them from the companies without tax consequences. The transfer of control over bitcoin from the companies to Ver’s personal accounts constituted a taxable dividend.

After renouncing citizenship, Ver had the status of a nonresident alien, so he was subject to a thirty-per-cent withholding tax (WHT) on dividends from American corporations. With seventy thousand bitcoin at an average value of, say, ten thousand dollars in 2017 (bitcoin fluctuated between three and nineteen thousand that year), the dividend amounted to about seven hundred million dollars. Thirty per cent of that is two hundred and ten million in withholding tax.

When the accountant preparing Form 1040-NR for Ver for 2017 asked point-blank whether Ver had received any distributions or income from MemoryDealers or Agilestar, Ver answered in the negative. He lied. Form 1040-NR for 2017 showed no capital gain or dividend income from these transactions.

Ver apparently believed that because he had ordered the bitcoin removed from the accounting books, they ceased to exist for tax purposes. This is magical thinking – out of sight, out of mind. But tax law doesn’t work that way. A transfer of value from a company to a shareholder is a taxable event regardless of whether it’s properly booked or not. And every one of these transfers was immortalized on the blockchain with absolute precision.

The Technology That Was Supposed to Protect: Blockchain Forensics

At this point, Ver’s story becomes particularly fascinating from a technological and legal perspective. Ver committed fraud that, at the moment of its commission in 2014, seemed practically impossible to detect. The calculation was simple: How can the I.R.S. prove how many bitcoin Ver actually owned? Bitcoin addresses aren’t registered in anyone’s name. There’s no central institution that maintains a ledger of owners. The blockchain is public, but it’s like a phone book printed in an alphabet nobody knows – you see all the transactions, but you don’t know who’s behind which address.

A bitcoin address looks like this: 1E6mijNx2xKzRt6KXiqZncUmybgYN4cn2X. It’s a long string of random characters and numbers. In itself, it says nothing about the owner. Ver could show his advisers a valuation claiming twenty-five thousand bitcoin while he actually had five times that, thinking the difference couldn’t be proved.

In 2014, that seemed a reasonable assumption. Blockchain analysis was then an almost academic field – a few startups, a few research projects, lots of theory and few practical tools. The basic concept was known: if two bitcoin addresses co-spend funds in a single transaction (co-spending), they’re probably controlled by the same owner, because it would require possessing the private keys to both addresses. This allowed grouping addresses into clusters. But implementation was difficult, requiring enormous computing power and specialized knowledge.

Ver didn’t anticipate one fundamental thing: the pace of development of blockchain-forensics tools over the course of a decade would exceed all expectations, and bitcoin’s pseudonymity would prove an illusion that would shatter under the onslaught of algorithms, machine learning, and international coöperation among law enforcement.

By 2024, the situation was diametrically different. Companies such as Chainalysis, Elliptic, and CipherTrace had developed blockchain-forensics tools to a level nobody could have predicted. Clustering algorithms not only group addresses based on co-spending but apply dozens of sophisticated heuristics.

Change-address detection identifies change from transactions – when you spend some bitcoin, the rest returns to a new address in your wallet, which can be linked to the source address. Timing analysis tracks time patterns of transactions characteristic of specific users. Amount correlation identifies round numbers and specific amounts that suggest a common owner. Peel-chain analysis tracks the technique in which criminals try to “peel” large sums through a series of small transactions. Exchange-deposit clustering identifies addresses belonging to cryptocurrency exchanges (check: how to obtain a CASP licence for cryptocurrency activities), where pseudonymity meets the Know Your Customer system and suddenly we get a name, an address, a passport number.

Machine learning identifies behavior patterns characteristic of specific users – how often you make transactions, at what times, what amounts you prefer, through which mixers you run funds trying to cover your tracks. Graph analysis reconstructs entire networks of relationships between addresses, creating maps of connections so complex that a single human couldn’t analyze them, but algorithms process them in seconds.

International coöperation among law-enforcement agencies adds another dimension. Cryptocurrency exchanges in jurisdictions coöperating with the U.S. – and that’s most major platforms – are obligated to comply with court summonses and requests for information. Kraken, Coinbase, Bitfinex, Poloniex – all these platforms have an obligation to provide information about their users on demand from law enforcement. The moment bitcoin passes through a K.Y.C. checkpoint at a regulated exchange, pseudonymity is pierced. We have an attribution point – a place where a pseudonymous address on the blockchain connects to a real identity in the physical world.

The indictment against Ver contains a passage that is a true masterpiece of forensic accounting: “Clustering analysis, combined with other attribution evidence, establishes that on February 3, 2014, defendant Ver owned approximately 131,000 bitcoin either directly or through his companies.”

Prosecutors identified four main clusters of addresses belonging to Ver. But they didn’t stop at identifying clusters. They documented the entire history: Ver personally opened accounts on the Mt. Gox and Bitstamp exchanges using his work e-mail from MemoryDealers. He submitted the company’s registration documents as identity verification. He ordered wire transfers from corporate accounts at American banks to these exchanges, bought bitcoin, and transferred them to specific addresses. These addresses then co-spent funds with other addresses, creating mathematically incontestable linked clusters.

In June, 2017, Ver transferred nearly three thousand bitcoin from Cluster 1JKPkp to his personal Poloniex account. Prosecutors could show the exact transaction: input addresses from the cluster, output address belonging to Poloniex, timestamp, amount. In November, 2017, Ver transferred tens of thousands of bitcoin from Cluster 1E6mij and Cluster 1LDWDu to various exchanges, where he exchanged them for two hundred and forty million dollars, which then went to Bahamian banks.

Each of these transfers is recorded on the blockchain with precision down to the satoshi (one hundred-millionth of a bitcoin) and a timestamp accurate to the second. This is accounting that no traditional financial system ever offered – complete, immutable, public history of every transaction ever executed, available to anyone who has the tools to analyze it.

Ver chose bitcoin as a tool of financial freedom and escape from state surveillance. bitcoin became the instrument of his downfall. If Ver had kept his fortune in cash, in physical gold, in bearer bonds, in works of art, prosecutors would – perhaps – have had no evidence. There would be no public ledger showing every purchase, every transfer, every transaction. But bitcoin, a technology designed for privacy through pseudonymity, turned out to be the best tool of surveillance capitalism ever invented.

Bitcoin Cash: Schism in the Church of True Faith

Before Ver was arrested, he managed to play a key role in one of the greatest schisms in cryptocurrency history. Around 2017, the bitcoin community plunged into a violent ideological dispute over the future of the protocol. At the center of the controversy was a seemingly technical question: How big should blocks in the blockchain be?

Bitcoin, according to Satoshi Nakamoto’s original design, had a block-size limit of one megabyte. A block is a batch of transactions added to the blockchain roughly every ten minutes. The block-size limitation meant a limitation on the number of transactions the network could process. As bitcoin gained popularity, the network began to clog. Transaction fees rose – sometimes it cost more to send twenty dollars in bitcoin than the transfer itself was worth. Transactions waited hours or days for confirmation.

Ver and a group of developers argued that the solution was simple: increase block size. Larger blocks mean more transactions per block, greater network throughput, lower fees. Bitcoin could actually function as peer-to-peer electronic cash, as Satoshi Nakamoto described it in the original white paper – a medium of exchange for everyday transactions, not just a store of value for speculators.

Bitcoin’s core developers objected. They argued that larger blocks require more disk space and greater bandwidth, which centralizes the network in the hands of professional node operators, while bitcoin’s philosophy is based on decentralization. Instead, they proposed Lightning Network – a second-layer solution where most transactions happen off-chain, and the blockchain serves only for final settlement.

Ver considered this a betrayal of the original vision. In August, 2017, a hard fork occurred – bitcoin split into two separate chains. The original chain remained bitcoin (BTC). The new chain, with blocks increased to eight megabytes (and later to thirty-two), was called bitcoin cash (BCH).

Ver, though not formally a founder of bitcoin cash, became its most vocal advocate and primary promoter. His thesis was simple: bitcoin cash, with larger blocks allowing more transactions at lower fees, represents the “true successor” to Bitcoin and realizes Satoshi Nakamoto’s original vision as peer-to-peer electronic cash.

The market didn’t share his enthusiasm. Bitcoin cash reached about two per cent of bitcoin’s market capitalization and never significantly exceeded that threshold. Financial institutions that began accepting cryptocurrencies chose bitcoin, not bitcoin cash. Ver still believes – he publishes predictions of a thousand-fold increase in BCH value when “global adoption” occurs. Critics argue that his advocacy stems mainly from the fact that Ver holds significant BCH holdings and has a financial interest in promoting the asset.

Arrest and Settlement with Uncle Sam

In April, 2024, Ver was arrested in Barcelona on the basis of an extradition request filed by the U.S. Department of Justice. The indictment included eight charges: three counts of mail fraud (sending false tax returns by mail is a federal crime), two counts of tax evasion, and three counts of filing false tax returns. Maximum combined penalty: a hundred and nine years in federal prison. Prosecutors claimed that Ver defrauded the I.R.S. of approximately forty-eight million dollars.

Ver spent months in a Spanish jail awaiting a decision on extradition. Spain has an extradition treaty with the U.S. The case looked bad. The blockchain analysis was incontestable. The analytics linking addresses to Ver were solid. Correspondence with advisers documented willfulness – conscious and deliberate deception. The backdated gift return was evident falsification. The 2017 distributions were documented on the blockchain and in exchange logs.

But Ver had one ace up his sleeve. The King of Clubs (♣), to be precise. In January, 2025, Donald Trump pardoned Ross Ulbricht, the founder of Silk Road, who had originally been sentenced to life in prison for running a darknet marketplace. This was a clear signal that the new Administration had a much friendlier approach to cryptocurrency-related crimes.

Ver invested strategically: six hundred thousand dollars to work with Roger Stone, a longtime political strategist associated with Trump. He hired lawyers with connections in the new Administration. The investment paid off.

In October, 2024, Ver entered into a deferred-prosecution agreement with the Department of Justice. The legal construction of this settlement is fascinating. Ver agreed to pay forty-nine million nine hundred and thirty-one thousand nine hundred and eleven dollars and nineteen cents. The amount includes:

• The actual tax liability for 2014 and 2017;
• A civil penalty provided for in Section 6663 of the Internal Revenue Code, amounting to seventy-five per cent of the underpaid tax, imposed when “any portion of the underpayment of tax is due to fraud”;
• Statutory interest accrued over eleven years.

In return, prosecutors agreed to defer criminal proceedings for one month, to allow Ver to finalize a closing agreement with the I.R.S. – a formal agreement definitively determining his tax obligations. After the agreement was finalized, prosecutors filed a motion to dismiss the indictment without prejudice.

“Without prejudice” is a crucial clause. It means the dismissal isn’t final. The deferred-prosecution agreement includes a three-year tolling period – a period in which the statute-of-limitations clock is paused. If Ver violates the terms of the agreement within those three years, the government can resume criminal proceedings. Ver expressly waives the right to raise claims of statute of limitations or violation of the right to a speedy trial. Only after three years, if Ver doesn’t violate the agreement, does the government commit not to prosecute him criminally for the acts described in the indictment.

The deferred-prosecution agreement also includes factual admissions. Ver admitted that on March 2, 2014, he owned at least a hundred and thirty thousand six hundred and sixty-four bitcoin worth approximately seventy-three million dollars. He admitted that his cost basis didn’t exceed three million dollars. He admitted that he was obligated to report these assets on Form 8854 and pay exit tax. And, most important, he admitted that his failure to fulfill this obligation was willful: “a voluntary and intentional violation of a known legal duty.” In American criminal tax law, willfulness is a constitutive element of the crime – there must be awareness of the legal duty and a conscious decision to violate it.

These admissions can be used against Ver in any future proceedings if he violates the agreement. Ver expressly waived the right to invoke the Fifth Amendment (protection against self-incrimination), Federal Rule of Criminal Procedure 11(f), and Federal Rule of Evidence 410, which would normally protect statements made during plea negotiations. This is a significant legal concession.

The Cost of Lying

The mathematics of Ver’s case are simple. If he had simply properly reported his bitcoin and paid the exit tax in 2014, his bill would have been about fourteen million dollars. Instead, he paid fifty million in the settlement – a difference of thirty-six million to the negative. Add to that several million in legal costs, six hundred thousand dollars paid to Roger Stone for lobbying, several months spent in a Spanish jail awaiting an extradition decision, a destroyed reputation as a libertarian William Wallace, and three years of life with a conditional agreement hanging over his head like the sword of Damocles.

Ver also destroyed relationships with everyone who trusted him. The lawyers at Law Firm 1 acted in good faith. When the case broke, they had to appear before a grand jury as witnesses and explain how Ver had misled them. Appraiser 2, who prepared the undervaluations, was probably also called as a witness – his professional reputation is now forever linked to a fraud case. The accountants who prepared documentation for MemoryDealers and Agilestar had to explain why they didn’t notice that seventy thousand bitcoin had disappeared from the books. Ver’s employees were drawn into a scheme they probably didn’t know was illegal. They were simply carrying out orders from a boss they trusted and considered an authority.

Bitcoin taxation and change of tax residence: Lessons for the Future

Ver’s story offers several fundamental lessons for anyone operating in the space of cryptocurrencies or international tax planning.

First: technology doesn’t replace compliance with the law. Bitcoin may be decentralized, immutable, borderless, but the taxpayer is a natural person subject to a specific jurisdiction. A tax obligation doesn’t disappear by moving assets onto a blockchain. The exit tax exists precisely to close this loop – if you want to leave the jurisdiction, you must settle your unrealized gains.

Second: pseudonymity is not anonymity. Ver committed fraud that in 2014 seemed practically impossible to detect. Nobody then predicted how sophisticated blockchain-forensics techniques would be developed over the course of a decade. Companies such as Chainalysis developed tools that pierce pseudonymity on an industrial scale. Machine learning identifies behavior patterns. Graph analysis reconstructs networks of relationships. Attribution points at exchanges link pseudonymous addresses to real identities.

The blockchain is public and immutable. Every transaction is recorded forever with absolute precision. This is accounting more perfect than anything that ever existed in the traditional financial system. If Ver had kept his fortune in cash or gold, prosecutors would have had no evidence. But he chose bitcoin, and bitcoin betrayed him.

Third: lying to advisers is a suicidal strategy. Ver could obtain any legal conclusion he wanted simply by not telling his lawyers the truth. But a legal opinion based on false premises is worthless. Worse – when the case went to prosecutors, Ver couldn’t claim he’d acted in good faith relying on legal advice, because he had systematically misled his lawyers. The e-mail documentation revealed the entire cat-and-mouse game. This wasn’t a mistake or an error of interpretation – it was conscious fraud.

Fourth: geographic arbitrage has limits. Ver acquired citizenship in Saint Kitts, later Antigua; he lived in Japan; he kept money in the Bahamas. He thought such a multi-jurisdictional structure would make him untouchable. But the cryptocurrency exchanges through which most of his transactions passed operated in jurisdictions coöperating with the U.S. The moment bitcoin passed through a K.Y.C. checkpoint, pseudonymity was pierced. Ver was arrested in Spain, a country with an extradition treaty with America.

For tax-law practitioners, Ver’s story is a cautionary tale. When a client starts answering specific questions hypothetically, when he avoids disclosing basic facts, when he changes advisers looking for someone who will tell him what he wants to hear – these are red flags. At that point, the adviser has two options: refuse further coöperation, or very carefully document that he warned the client about the consequences and that the client knowingly ignored his advice.

Ver had educated lawyers, experienced accountants, professional appraisers. They all told him, more or less directly, that what he was doing was improper. Ver ignored them all, because he was convinced he was smarter than the system. He thought blockchain forensics would remain primitive, that pseudonymity would be sufficient, that jurisdictions wouldn’t coöperate effectively. It turned out the system has a longer memory, more patience, and better tools than a libertarian ideologue with a fortune in cryptocurrencies. This is a lesson that cost fifty million dollars.

Robert Nogacki

Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.