Prominent Cryptocurrency Investor Faces Senate Tax Inquiry

A Senate committee is looking into whether a well-known cryptocurrency investor violated federal tax laws to avoid paying hundreds of millions of dollars in taxes after relocating to Puerto Rico, a popular offshore tax haven, according to a letter obtained by The New York Times.https://svtoday.org/

Senator Ron Wyden, a Democrat from Oregon, sent the letter on January 9 to Dan Morehead, the founder of Pantera Capital, one of the largest cryptocurrency investment firms.

The letter stated that the Senate Finance Committee was investigating the tax compliance of affluent Americans who had moved to Puerto Rico to take advantage of a special tax incentive available to residents of the island, which can reduce their tax liability to zero.

The investigation is focused on individuals who may have improperly used this tax break to avoid paying taxes on income earned outside of Puerto Rico, according to the letter.

“The majority of the gains in these cases are typically considered U.S.-source income, which should be reported on U.S. tax returns and is subject to U.S. taxation,” the letter explained.

The letter requested detailed information from Mr. Morehead regarding the $850 million in investment profits he made after relocating to Puerto Rico in 2020, noting that he “may have classified” these profits as exempt from U.S. taxes.

Mr. Morehead responded by stating that he moved to Puerto Rico in 2021 and believed he had acted appropriately in regard to his taxes.

Senator Wyden, who chaired the Finance Committee until Republicans took control of the Senate last month, had previously led investigations into strategies used by wealthy Americans to avoid paying taxes. During his tenure, the committee investigated multiple tax avoidance tactics used by affluent individuals.

It is unclear what the outcome of this investigation will be. Under the Biden administration, federal regulators and Democratic lawmakers have taken a tougher stance on the cryptocurrency industry and high-profile tech figures, while former President Trump and Congressional Republicans have supported the crypto sector, promising less aggressive enforcement.

A spokesperson for Mr. Wyden confirmed that the investigation was “ongoing,” but declined to offer additional comment. A representative for the new chair of the Finance Committee, Senator Michael D. Crapo of Idaho, did not respond to a request for comment.

For over a decade, wealthy Americans, particularly tech entrepreneurs, have moved to Puerto Rico to benefit from Act 60, a tax incentive established in 2012 under a different name. This law exempts capital gains earned in Puerto Rico from both local and federal taxes.

In recent years, the Justice Department, the IRS, and lawmakers have investigated potential abuses of this tax system. The IRS’s criminal division has identified roughly 100 individuals who may have evaded taxes.

Mr. Morehead, a former Goldman Sachs trader, founded Pantera Capital in the early 2000s and grew it into one of the largest cryptocurrency investment firms, backing over 100 crypto companies in the last 12 years. These include major U.S.-based cryptocurrency companies like Circle, Ripple, and Coinbase, which operates the largest digital currency marketplace in the U.S.

After relocating to Puerto Rico, Pantera sold a large position, generating capital gains exceeding $1 billion, according to Senator Wyden’s letter. Mr. Morehead’s share of these gains was over $850 million.

The letter requested Mr. Morehead to provide information regarding these transactions, including the names of his tax advisors, and to disclose any assets he sold while residing in Puerto Rico, including cryptocurrencies.