The Office of Attorney General for the District of Columbia (OAG) is suing former MicroStrategy CEO Michael Saylor, claiming the billionaire bitcoin influencer has “unlawfully deprived the District of tens of millions of dollars in tax revenue.”
The lawsuit, brought based on an investigation following a whistleblower’s suit against Saylor, also names MicroStrategy (MSTR) — the publicly-traded cloud data company turned largest corporate bitcoin holder that Saylor co-founded — as a defendant, alleging that it conspired to help him evade taxes he owes.
According to the civil complaint, Saylor illegally avoided more than $25 million in D.C. taxes by pretending to be a resident of Virginia and Florida from 2005 to the present.
The complaint said Saylor has resided in D.C. since 2005, but for seven years he "purported to be a resident of Virginia." Then, in 2012, the complaint states, Saylor, “embarked on a scheme to fraudulently misrepresent himself to be a resident of Florida — a jurisdiction without any personal income tax.”
As cover for the alleged scheme, the attorney general says Saylor bought a house in Miami Beach, obtained a Florida driver’s license, and state voter registration.
DC’s individual income tax rate on taxable income over $1 million totaled $85,025, plus 8.95% on income in excess of $1 million between 2015-2021. Virginia’s individual income tax rate during this period totaled 5.75% on income in excess of $17,000.
The AG claims that in 2011, Saylor started renovations on what is now a custom-built “7,000 square foot penthouse on the Georgetown waterfront” known as "Trigate." Saylor began purchasing the properties that he combined into one unit starting in 2005.
Saylor’s penthouse was renovated from 2012 to 2014, and during that time he shared several captioned pictures on social media, indicating his residence in DC and intention of moving back into the Georgetown penthouse after renovations were completed, the complaint said.
For the same period, the billionaire also docked and lived on board multiple yachts on the District’s Potomac river bank, according to the complaint.
“Since at least 2012, Saylor has bragged to his confidants about his successful plan to create the illusion of residing in Florida in order to evade the District’s personal income taxes,” the complaint stated.
The filing also alleged MicroStrategy executives were aware that Saylor’s claims of being a Florida resident were false, and that he was instead a resident of the District of Columbia, where MicroStrategy funded his transportation including a private driver that took him between the company’s headquarters and his D.C. penthouse.
Starting around 2013, Saylor allegedly asked MicroStrategy to use his Florida address to file tax documents with the Internal Revenue Service. The complaint said sometime in 2014, the MicroStrategy CFO, brought the filing issue to Saylor as a potential liability for the company.
In an attempt to reduce the liability risk, the AG said, Saylor agreed to cut his compensation to $1 though continued to receive "high cash value of fringe benefits" such as use of the company's plane and one-time "gross-up" payments.
The chairs of MicroStrategy’s Audit and Compensation Committees were also aware of the alleged tax strategy and were "actively assisting" Saylor to avoid his obligations, the complaint states. MicroStrategy could not be reached for comment by press time.
In a personal statement shared Wednesday afternoon Saylor responded to the suit saying, "I respectfully disagree with the position of the District of Columbia, and look forward to a fair resolution in the courts."
MicroStrategy also denies the claims as false, adding "we will defend aggressively against this overreach."
For tax purposes, residents include anyone who has homes in the District who maintain a residence in the District for at least 183 days during the year.
The lawsuit is the first suit brought under the authority of the District's recently passed False Claims Act, which encourages whistleblowers to report instances where D.C. residents evade the District's tax laws by misrepresenting their residence.
The AG is asking the court to order Saylor to pay the alleged unpaid taxes, plus interest, penalties, and attorneys fees. The law also permits the court to punish the tax evader by imposing “treble damages” or three times the amount of the taxes evaded.
If the suit is successful, a whistleblower may be awarded up to 30% of the funds collected by the District.
Though the value of the bitcoin held by Saylor’s company has fallen by 58% since January, MicroStrategy held a market capitalization of $2.6 billion as of Wednesday afternoon. At the end of Q2, MicroStrategy held 129,699 bitcoins on its balance sheet, worth $2.6 billion on the open market.
Since first buying bitcoin during the third quarter of 2020, MicroStrategy has invested over $4 billion into the cryptocurrency and it has never sold its holdings. Its shares are changing hands at $232, down more than 3.6% following the lawsuit.
The Office of Attorney General estimates that Saylor’s net worth is over $1 billion.
The story has been updated with comments from Michael Saylor and MicroStrategy.