Drake Software blog for tax pros, covering tax, IRS news, and more

John McAfee Indicted for Tax Evasion

John McAfee Indicted for Tax Evasion

Cybersecurity pioneer and crypto promoter John McAfee can now add another title to his job description: defendant.

McAfee is well-known in tech circles, first for starting the anti-virus company that bears his name, and later for promoting two particular flavors of cryptocurrency. The Internal Revenue Service says McAfee showed up on their radar screens for tax evasion and willful failure to file tax returns.

The federal indictment was actually handed down in June, but was sealed until the tech millionaire was arrested recently in Spain, where he now awaits extradition to the U.S.

The U.S. Justice Department describes its case this way in a news release: “John McAfee earned millions in income from promoting cryptocurrencies, consulting work, speaking engagements, and selling the rights to his life story for a documentary. From 2014 to 2018, McAfee allegedly failed to file tax returns, despite receiving considerable income from these sources. The indictment does not allege that during these years McAfee received any income or had any connection with the anti-virus company bearing his name.”

McAfee reportedly separated his fortunes from those of the anti-virus company some time ago.

According to the indictment, McAfee allegedly evaded tax liability by directing his income to be paid into bank accounts and crypto exchange accounts in the names of various nominees. The prosecution also alleges McAfee attempted to evade the IRS by concealing real property, a vehicle and a yacht in the names of others.

There were cryptocurrency irregularities.

McAfee also finds himself on the hot seat of the Securities and Exchange Commission (SEC), which accuses him of promoting certain crypto ICOs without disclosing the fact he was paid to do so by the ICO organizers.

The SEC claims McAfee was paid more than $23 million dollars for his efforts, which are alleged to have taken place between 2017 and 2018. The ICOs in question raised more than $41 million for the organizers.

The 55-page SEC filing also includes three other important accusations against McAfee:

  • McAfee falsely claimed to be an investor and/or a technical advisor when he recommended several ICOs, creating the impression that he had vetted these companies, that they were benefitting from his technical expertise, and that he was willing to invest his own money in the ventures. In reality, McAfee’s tweets were paid promotions disguised as impartial investment advice.
  • After a blogger exposed McAfee’s paid promotions and he could no longer generate interest in ICOs with tweets, McAfee was still holding a large number of virtually worthless securities from the ICOs he had previously touted. To cash out, McAfee encouraged investors to purchase the securities sold in certain of the ICOs without disclosing that he was simultaneously trying to sell his own holdings and had paid another third-party promoter to tout the securities.
  • Finally, McAfee engaged in a practice known as “scalping” as to at least one digital asset security, by accumulating large amounts of the digital asset security and touting it on Twitter without disclosing his intent to sell it. Scalping generally allows promoters to sell their securities holdings quickly and profitably through market interest that they deceptively generate, and violates the federal securities laws.

If convicted on the tax evasion charges, McAfee faces a maximum sentence of five years in prison on each count of tax evasion and another maximum sentence of one year behind bars for each count of willful failure to file. If convicted, he also faces supervised release, restitution, and monetary penalties.

McAfee’s indictment was handed down in the Western District of Tennessee, under the watchful eyes of Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S, Attorney D. Michael Dunavant of the district. Zuckerman and Dunavant both credited the special agents of the IRS Criminal Investigation division for their hard work in the case.

Note: An indictment merely alleges that crimes have been committed. The defendant is presumed innocent until proven guilty beyond a reasonable doubt. 

Bob Williams

Forget genes; I’ve got words in my DNA. Communication has been part of who I am nearly all my life. From a long career in radio news to another one in newspapers – and a University of Georgia journalism degree sandwiched between the two – language has been my life. I’ve also been fortunate to have learned the tax business from the ground up here at Drake, starting with 1040.com online forms some years ago before moving on to work on the Web. In all things tax-ish, we aim to give you tools you can use.