Michael Saylor and MicroStrategy Settle Record $40 Million Tax Fraud Case

The District of Columbia has reached a landmark $40 million settlement with Michael Saylor, co-founder of MicroStrategy, and his company over allegations of tax fraud. This settlement marks the largest income tax fraud recovery in the history of the district and stems from accusations that Saylor evaded over $25 million in income taxes while living in the district from 2005 to 2020.

The legal troubles for Saylor began in 2021 when whistleblowers filed a lawsuit alleging that Saylor, despite residing in the District of Columbia, falsely claimed residency in lower-tax jurisdictions such as Florida and Virginia to avoid paying DC income taxes. These claims were supported by evidence that Saylor lived in a luxurious penthouse in Georgetown and maintained multiple yachts at Washington Harbor. Saylor reportedly bragged about his tax evasion tactics, even encouraging others to follow his example.

The District’s Attorney General’s Office, led by Brian L. Schwalb, took up the case in August 2022, adding MicroStrategy to the complaint. The company was accused of assisting Saylor in his fraudulent scheme by submitting false W-2 forms and withholding filings. These forms misrepresented Saylor’s residency to help him evade local taxes. The comprehensive investigation revealed detailed logs of Saylor’s whereabouts, contradicting his claimed out-of-state residency.

Saylor and MicroStrategy faced significant legal pressure, with experts predicting potential penalties reaching up to $75 million. To avoid prolonged litigation and its associated costs and burdens, Saylor and MicroStrategy agreed to the $40 million settlement, which includes back taxes, interest, and penalties. This settlement does not constitute an admission of guilt by either party. Saylor maintained his stance, asserting that he moved to Florida in 2012 and continues to dispute claims of DC residency.

The case is notable as the first major enforcement under the updated DC False Claims Act, which was amended in 2021 to enhance the district’s ability to tackle tax fraud. The law now permits private individuals to file lawsuits on behalf of the district against tax evaders, with whistleblowers eligible to receive up to 25% of the recovered funds if the case is successful.

The settlement has elicited mixed reactions. Attorney General Schwalb emphasized that the resolution serves as a strong message that no individual or corporation, regardless of wealth or influence, is above the law. He condemned Saylor’s actions as an affront to law-abiding taxpayers and underscored the importance of holding tax cheats accountable to ensure resources for essential public services like safety, infrastructure, and education.

Despite the legal controversy, MicroStrategy’s stock saw a positive response, with shares rising 3-4.5% in pre-market trading following the settlement announcement. This can be attributed to the company’s robust position in the cryptocurrency market, spearheaded by Saylor’s aggressive Bitcoin investments. As of May 2024, MicroStrategy owns 214,400 BTC, solidifying its image as a major player in the crypto space.

Saylor’s influence in the cryptocurrency community remains substantial. He is a well-known Bitcoin advocate, regularly promoting the digital asset through social media and public speaking engagements. His strategic shift of MicroStrategy towards cryptocurrency investments has significantly increased the company’s market value and attracted a dedicated following among Bitcoin enthusiasts.