The Tax Times: Expatriation Doesn’t Shield US Crypto Tax Cheats

Tuesday, July 28, 2026

Expatriation Doesn’t Shield US Crypto Tax Cheats

A recent criminal tax case out of the U.S. District Court for the Western District of Texas underscores a point many international taxpayers misunderstand: expatriation does not eliminate prior or ongoing U.S. tax obligations.

In United States v. Schmidt, Case No. 1:26-cr-00094, a crypto hedge fund manager who renounced his U.S. citizenship and relocated to the Cayman Islands was sentenced to 37 months in federal prison following a guilty plea to tax evasion.

Key Facts

Justin Ryan Schmidt, a Texas native, operated a cryptocurrency-focused hedge fund structure, including Translunar Crypto LP and related entities. According to the Department of Justice, Schmidt earned millions through these activities but underreported or concealed that income on his U.S. tax filings over multiple years.

The government alleged several forms of misconduct:

· Filing false tax returns for at least three years

· Failing to disclose foreign financial accounts, including holdings at a Cayman Islands bank

· Misrepresenting financial information during expatriation

· Providing false information in connection with a multimillion-dollar real estate transaction

Notably, during his 2022 expatriation, Schmidt reportedly declared a net worth of approximately $25,000 when his actual net worth exceeded $2 million, an allegation that directly implicates the exit tax regime under IRC § 877A.

Sentencing Outcome

After initially facing eight counts, Schmidt ultimately pleaded guilty to one count of tax evasion. The court imposed:

· 37 months’ imprisonment

· Three years of supervised release

· Approximately $3.4 million in restitution

The sentence aligned with the government’s recommendation and fell within the applicable guideline range.

Expatriation Does Not End IRS Jurisdiction

The DOJ emphasized a recurring enforcement theme: renouncing U.S. citizenship does not shield taxpayers from liability for prior misconduct or ongoing reporting failures.

This case highlights several critical compliance risks:

· Exit tax exposure under IRC § 877A, particularly where net worth or income is misstated

· Continued enforcement of pre-expatriation tax liabilities

· Criminal exposure tied to false statements and willful noncompliance (including FBAR violations)

· Increased scrutiny of digital asset income and offshore structures

Practical Takeaways for Advisors

For practitioners advising high-net-worth and internationally mobile clients, Schmidt reinforces the importance of accurate and defensible reporting at every stage of the expatriation process.

Particular attention should be given to:

· Proper valuation of worldwide assets prior to expatriation

· Full disclosure of foreign financial accounts and entities

· Coordination between income tax filings, FBAR, and Form 8854 disclosures

· Documentation supporting cryptocurrency income, gains, and entity structures

The Schmidt case is another example of the government’s willingness to pursue criminal enforcement in cross-border and digital asset contexts. For taxpayers considering expatriation, the planning window is before, not after, compliance failures occur.