Michael Saylor and MicroStrategy Reach $40 Million Settlement in Tax Fraud Case

Michael Saylor, the billionaire Bitcoin investor, along with the software firm he founded, MicroStrategy, have agreed to pay $40 million to settle allegations of income tax fraud. This settlement marks the largest income tax recovery in the history of Washington, D.C., as announced by the city’s Attorney General.

The Lawsuit Resolution

The D.C. Attorney General’s office filed lawsuits in 2021 and 2022 accusing Saylor of avoiding over $25 million in income taxes by falsely claiming residency in states with lower tax rates such as Virginia and Florida. Despite these serious allegations, both Saylor and MicroStrategy have denied any wrongdoing as part of the settlement agreement.

According to the Attorney General, Brian L. Schwalb, this resolution sends a clear message that no individual, regardless of their wealth or status, is above the law. He stated, “No one in the District of Columbia, no matter how wealthy or powerful they may be, is above the law.” The resolution of this case is expected to remind all District residents that tax evasion will not go unnoticed or unpunished.

Backstory of the Legal Battle

The dispute centers around Saylor’s claims of residency outside the District while allegedly living predominantly in a luxurious 7,000-square-foot penthouse in Georgetown or on yachts docked on the Potomac River. Legal documents reveal that from 2005 to 2021, Saylor did not pay any D.C. income taxes, despite evidence suggesting significant physical presence in the city.

MicroStrategy, primarily recognized as a major corporate buyer of Bitcoin, asserted that the tax issues were personal to Saylor and that the company was not responsible for managing his tax affairs. Under a separate agreement, Saylor will personally compensate the $40 million to the District.

The case was initially propelled by whistleblower claims under the city’s False Claims Act, which allows individuals to report instances of tax fraud. Discussions are ongoing about the amount to be awarded to the whistleblowers, with potential judicial intervention if no agreement is reached.

Impact of Saylor’s Resignation

In response to the legal pressures, Michael Saylor stepped down as CEO of MicroStrategy in August 2022, though he remains an integral part of the company. This transition marks a significant shift in leadership, reflecting the serious repercussions of the lawsuit while continuing to steer MicroStrategy’s strategic direction.

MicroStrategy’s Strategic Bitcoin Investments

Under Saylor’s leadership, MicroStrategy has aggressively invested in Bitcoin, positioning itself as one of the largest corporate holders of the cryptocurrency. As of March 2024, the company boasts holdings of 214,400 bitcoins, acquired at an average purchase price of $35,000 per BTC, representing an investment of approximately $7.5 billion.