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IRS Successfully Prosecute First Bitcoin Tax Case, Ordered to Pay Over $8 Million in Restitution

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Volodymyr Kvashuk, a former Microsoft engineer, has been sentenced to nine years in prison for defrauding the tech giant for over $10 million, using a bitcoin mixer to hide taxable income, and filing fraudulent crypto tax returns.

In what is described as the “nation’s first Bitcoin case” by the IRS, Kvashuk was ordered to pay $8,344,586 in restitution. He may be deported to Ukraine following his prison term. IRS-CI Special Agent in Charge Ryan L. Korner said on Monday,

“Today’s sentencing proves you cannot steal money via the Internet and think that Bitcoin is going to hide your criminal behaviors.

Our complex team of cybercrimes experts with the assistance of IRS-CI’s Cyber Crimes Unit will hunt you down and hold you accountable for your wrongdoings.”

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A Skiller developer, Kvashuk, 26, worked at Microsoft from August 2016 to June 2018, during which he used his testing access to Microsoft’s online retail sales platform to steal “currency stored value” (CSV) such as digital gift cards.

He made millions of dollars by reselling them on the internet and used the proceeds to purchase a $1.6 million lakefront home and a $160,000 Tesla vehicle.

To hide the source of the funds that he ultimately sent to his bank account, he used a bitcoin “mixing service.” During the seven months of illegal activity, he transferred about $2.8 million in Bitcoin then filed fake tax return forms, claiming the bitcoin had been a gift from a relative.

While gifts are not taxable to the recipient under the current US tax code, one is required to check “yes” on the infamous crypto tax question “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” even if it is a crypto gift. CoinTracker noted,

“Before the 2019 tax year, if you received a crypto gift, you wouldn’t have to disclose it any tax forms encouraging tax cheats to hide crypto income.”

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