Crypto hedge fund manager gets 37 months in prison for tax evasion after renouncing US citizenship

Here’s a move that looked clever on paper: earn millions running a crypto hedge fund, renounce your US citizenship, tell the government you’re worth $25,000, and walk away clean. Justin Ryan Schmidt tried exactly that. It did not work.

Schmidt, a former hedge fund manager based in Austin, Texas, was sentenced to 37 months in federal prison on July 27 for tax evasion. The case is one of the most pointed examples yet of US authorities cracking down on crypto operators who think expatriation is a get-out-of-taxes-free card.

The scheme that unraveled

Schmidt managed Translunar Crypto LP, a hedge fund that, as the name suggests, was firmly in the digital asset space. Between 2020 and his expatriation in March 2022, he earned at least $6 to $7 million in unreported income from the fund.

When he renounced his US citizenship on March 3, 2022, he submitted DS-4080 and DS-4083 forms, the official expatriation paperwork, claiming a net worth of just $25,000. The false filings were designed to dodge the so-called “exit tax,” which requires departing citizens to settle up with the IRS on unrealized gains and outstanding obligations before they leave.

Schmidt also concealed foreign bank accounts, a violation of FBAR (Foreign Bank Account Report) requirements. Failing to file FBARs can carry penalties of up to $100,000 per violation or 50% of the account balance, whichever is greater.

The Colorado real estate play

Even after giving up his passport, Schmidt kept doing business on US soil. In 2023, he purchased a property in Colorado for $5.8 million and flipped it for $9 million. That’s a $3.2 million gain on a single transaction. He did not report the US-sourced income.

Non-resident aliens are still subject to US tax on income effectively connected with a US trade or business, and real estate gains fall squarely in that category. The Department of Justice made a point of emphasizing that expatriating does not insulate individuals from their US tax obligations.

Why this matters for crypto investors

The DOJ specifically highlighted the cryptocurrency sector in its enforcement messaging around the Schmidt case. The expatriation angle adds another layer. Filing false expatriation statements transforms what might be a legitimate tax planning strategy into a federal crime.

For individual investors, the takeaway is practical. If you’ve held crypto in foreign accounts and haven’t filed FBARs, you’re sitting on a ticking clock. The IRS has voluntary disclosure programs that, while expensive, are considerably cheaper than 37 months of your life.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.