Justin Ryan Schmidt, who once ran a crypto hedge fund, ended up with a 37-month federal prison sentence for trying to dodge US taxes by renouncing his citizenship. His plan to claim minimal net worth while hiding millions in income backfired spectacularly.
Behind the Scheme
Schmidt managed Translunar Crypto LP, a fund focused on digital assets. From 2020 until he gave up his US passport in March 2022, he pocketed between $6 million and $7 million in income he never reported. When submitting his expatriation forms, he declared a net worth of only $25,000 to avoid the "exit tax" that requires Americans leaving the country to pay taxes on unrealized gains and outstanding debts to the IRS before departure.
Further complicating his case, Schmidt failed to report foreign bank accounts as required by FBAR rules. Such violations can mean penalties reaching $100,000 per unfiled report or half the account’s balance, whichever is higher.
Continuing Business on US Soil
Despite ditching his passport, Schmidt remained active in the US economy. In 2023, he bought a Colorado property for $5.8 million and sold it for $9 million, earning a $3.2 million profit he never declared. The US taxes income from any trade or business connected to the country, including real estate.
The Department of Justice stressed that renouncing citizenship doesn’t free individuals from US tax obligations, especially in crypto-related ventures.
This crackdown aligns with growing scrutiny on digital asset operators. For more context on regulatory moves affecting the crypto world, see the SEC's increasing crypto rule enforcement.
This material is for informational purposes and does not constitute financial advice.
