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Crypto billionaire, D.C. settle tax residency tax dispute for $40 million

C&O Canal and towpath Georgetown WDC-1
Scenic Georgetown is one of the most popular neighborhoods in Washington, D.C. It’s where the D.C. Office of the Attorney General (OAG) alleged a bitcoin billionaire lived for years, but did not pay District income taxes. (Photo courtesy GeorgetownDC.com)

Where you live affects your taxes, says the woman who’s spent most of her life in two states, Texas and Florida, without a personal income tax.

For a while, though, I did live in two tax collecting jurisdictions, Washington, D.C., and Maryland.

Fortunately for the hubby and me, when we resided in the national capital, we weren’t on the District of Columbia’s tax radar, mainly because we didn’t make that much money. Also, we didn’t try to pull a tax fast one.

Things were much different for Michael J. Saylor. The bitcoin/technology company billionaire raked in a whole lot more cash than we could ever hope for, unless the lottery eventually comes through. Also, according to a lawsuit filed by D.C. officials, he tried to evade the city’s residency rules.

This week, the D.C. Office of the Attorney General (OAG) and Saylor reached an agreement ending the tax residency legal matter.

District of Columbia Attorney General Brian L. Schwalb announced on June 3 that Saylor, a bitcoin advocate, and MicroStrategy, Inc., the technology company he co-founded in 1989 and led, will pay D.C. $40 million to resolve the tax fraud matter.

Under the agreement, Saylor admitted no wrongdoing, and denied violating District law.

Michael_Saylor_2022_ReasonTV-interview-600Years of tax troubles: Saylor’s tax troubles began in 2021, when a whistleblower lawsuit filed against him alleged that he had defrauded the District, and failed to pay income taxes he legally owed from 2014 through 2020.

That filing prompted an independent investigation by the D.C. OAG, which then intervened in the whistleblower lawsuit and filed its own complaint against Saylor.

In addition to the 2014-2020 tax years addressed by the original whistleblowers’ complaint, District officials also sought to recover taxes it alleged Saylor failed to pay for the tax years 2005 through 2013.

The District’s lawsuit alleged that Saylor lived in a 7,000-square-foot penthouse in the Georgetown neighborhood of Washington, D.C., since 2005. It also alleged that Saylor docked multiple yachts in Washington Harbor.

Investigators also cited Saylor’s social media posts, in which he talked about the “View from my Georgetown balcony” and the “need to finish renovating the apartment so I can move back in.”

However, according to the lawsuit, despite those D.C. connections, Saylor pretended to be a resident of Florida, which has no personal income tax, or Virginia, where the state income tax rate is lower than in D.C., to avoid paying more than $25 million in District income taxes.

The OAG lawsuit also alleged that as part of the tax avoidance scheme, Saylor enlisted the assistance of his technology company, MicroStrategy.

The lawsuit alleged that company employees falsely reported address information on the MicroStrategy W-2 forms issued to Saylor, as well as omitted the company founder’s accurate information from the withholding filings it submitted to the District.

Settlement means money, not guilt admission: “Florida remains my home today, and I continue to dispute the allegation that I was ever a resident of the District of Columbia,” Saylor told the New York Times’ DealBook following the settlement announcement.

“I have agreed to settle this matter to avoid the continued burdens of the litigation on friends, family, and myself,” added Saylor.

In a separate statement, MicroStrategy said that the case was a personal tax matter involving Saylor. The company said it “was not responsible for his day-to-day affairs and did not oversee his individual tax responsibilities.”

Firsts for D.C. tax enforcement: The action is notable for a couple of reasons.

First, the outcome is the largest income tax fraud recovery in Washington, D.C., history.

Second, the OAG’s lawsuit was the first of its kind brought under updates to the D.C. False Claims Act. Amendments in 2021 to the Act expanded the OAG’s tax fraud enforcement authority to hold tax cheats fully accountable.

“Tax cheats are freeloading off the backs of hardworking, law-abiding, tax paying District residents while depriving our city of resources needed for critical programs, including public safety, infrastructure, and education,” said D.C. Attorney General Schwalb in announcing the settlement.

“Michael Saylor and his company, MicroStrategy, defrauded the District and all of its residents for years. Indeed, Saylor openly bragged about his tax-evasion scheme, encouraging his friends to follow his example, and contending that anyone who paid taxes to the District was stupid. This precedent-setting settlement makes clear that no one in the District of Columbia, no matter how wealthy or powerful they may be, is above the law,” added Schwalb.

Tax Felon Friday: Although Saylor was not convicted of tax fraud and, under the agreement, admitted no tax wrongdoing, the ability of the District of Columbia to go after tax cheats under its False Claims Act earns mention in this week’s Tax Felon Friday feature.

If you want to catch up on all sorts of tax miscreants, the ol' blogs' special Tax Felon Friday page is a good place to start.

And if you want more tax crime posts, notably those that were published long before I gave them a special end-of-week feature, you can peruse, what else, the tax crimes category. You'll find this post at the top of that collection right now, so just scroll down for more.

You also might find these items of interest:



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