On 27 July 2026 the Justice Department announced that Justin Ryan Schmidt, a crypto hedge fund manager formerly of Austin and later resident in the Cayman Islands, was sentenced to 37 months in prison for tax evasion. He had renounced his US citizenship in March 2022.
The quote the DOJ led with was blunt: "renouncing U.S. citizenship does not shield you from American justice."
This case does not establish the consequences of an ordinary filing lapse. Its facts involved false returns, hidden accounts, a false expatriation statement, and false documents intended to defeat withholding.
What actually happened?
From the DOJ's release and the court record it describes:
- Over several years Schmidt earned at least $7 million from his hedge fund. On his 2020, 2021 and 2022 returns he reported income of $5,000 or less each year.
- He held millions of dollars in foreign bank accounts that he did not disclose to the IRS.
- He renounced in March 2022 and filed an expatriation statement reporting a net worth of $25,000, knowing it exceeded $2 million.
- On that same statement he falsely certified that he had complied with his tax obligations for the preceding five years.
- In 2023, as a non-citizen, he bought a house in Snowmass Village, Colorado for about $5.8 million and sold it three months later for about $9 million. He did not report the gain, and submitted false documents to stop tax being withheld on the sale.
He got 37 months, three years of supervised release, and about $3.4 million in restitution. IRS Criminal Investigation ran the case; Judge Robert Pitman sentenced him in the Western District of Texas.
What was the actual crime?
This is the part that matters, and it is not "he renounced."
Renouncing is lawful. Being a covered expatriate is lawful. Paying the exit tax is lawful. Someone with a $10 million net worth who renounces, files an honest Form 8854, pays the mark-to-market tax under IRC §877A and walks away has done nothing wrong. It is expensive, not criminal.
Schmidt's crime was lying to avoid all of that, twice on one form, on top of three years of false returns and hidden foreign accounts. The DOJ calls it a "false expatriation statement." That statement is Form 8854, and it is signed under penalties of perjury.
Note also that he was a filer. He filed returns for all three years. They were just false. The idea that the IRS only pursues people who file nothing does not survive this case.
Why does the $2 million number matter?
Because it is one of three tests for covered-expatriate status.
Under IRC §877A you are a covered expatriate if any one of three tests applies. One is a net worth of $2,000,000 or more on the date of expatriation. That figure is statutory and is not indexed for inflation. (The other two tests, explained.)
Schmidt reported $25,000, below the $2 million threshold by a factor of eighty. The Justice Department states that he knew his net worth exceeded $2 million; the release does not describe this as a valuation dispute.
What is the five-year certification, and why did it sink him?
The third covered-expatriate test has nothing to do with money. You are covered if you cannot certify, on Form 8854 under penalties of perjury, that you complied with all US federal tax obligations for the five tax years before you expatriate.
That certification is the single most under-appreciated part of renouncing. People treat the consular appointment as the finish line. It isn't. The tax exit runs through a form you sign afterwards, and there is no version of that form where you get to leave the compliance question blank.
Schmidt signed it falsely. He had three years of returns understating his income by millions and undisclosed foreign accounts sitting behind it, so a truthful certification was impossible. Both of his lies existed to serve the same goal: not being a covered expatriate.
Form 8854 asks whether the individual complied with federal tax obligations for the five tax years preceding expatriation. A person with filing gaps may be able to correct them before making that certification, but the relevant procedure and the ability to certify depend on the facts. The Streamlined procedures and the Relief Procedures for Certain Former Citizens have different eligibility rules and are not interchangeable.
Does renouncing end your US tax obligations?
No. Renunciation does not extinguish liabilities from earlier years, and US tax rules can continue to apply to US-source income and other specified items afterward.
Two things survive renunciation, and both appear in this case:
- Prior years stay open. Schmidt's 2020 and 2021 conduct happened while he was a citizen. Renouncing in 2022 did nothing to those years. A year you never filed stays open to civil assessment indefinitely under IRC §6501(c)(3). Criminal exposure is narrower but still long: under IRC §6531 the government has six years to bring charges for tax evasion or for a false return, running from the offense rather than from your departure.
- US-source income remains taxable. As a non-citizen, non-resident, Schmidt still owed US tax on the gain from a US property sale. When a foreign person sells US real estate the buyer is generally required to withhold a percentage of the gross price under FIRPTA (IRC §1445) and remit it to the IRS. Schmidt submitted false documents to defeat that withholding, which is how a post-renunciation transaction became part of a US criminal case.
Is this what "willful" means?
The Schmidt facts are an example of criminal willfulness, but they do not decide whether another person's conduct was willful or non-willful.
Criminal tax cases require the government to prove willfulness beyond a reasonable doubt: the voluntary, intentional violation of a known legal duty. Look at what that took here. Seven million dollars of income reported as five thousand. Millions in accounts hidden from the IRS. A sworn net worth statement off by a factor of eighty. A sworn compliance certification he knew was false. Fabricated documents to defeat withholding on a nine-million-dollar sale.
Another taxpayer's knowledge, advice, conduct, concealment, recklessness, and good-faith misunderstandings must be assessed on their own facts. Paying tax in another country or learning of an FBAR duty late can be relevant, but neither fact alone establishes non-willfulness. The Streamlined Filing Compliance Procedures require the taxpayer to certify non-willfulness under penalties of perjury. A late FBAR by itself is not a crime; criminal exposure requires proving willfulness, which is a different and much higher bar.
A filing gap alone does not establish a crime. Willfully false returns, sworn statements, or documents can create criminal liability when the statutory elements are proved.
The lessons
- Review the five-year certification before expatriation. Form 8854 requires a sworn certification, and unresolved filing years can affect covered-expatriate status.
- Covered-expatriate status is not a crime. Concealment, false returns, and false statements can create separate civil or criminal exposure.
- The $2,000,000 net worth test is not indexed. It is one of three tests and requires an accurate asset-and-liability calculation.
- Renunciation does not close the past. Earlier liabilities remain, and US-source income can remain subject to US tax afterward.
- Filing something is not the same as being compliant. Schmidt filed every year. The returns were false, and that is what he went to prison for.
Where to start if this is you
If you are behind and thinking about renouncing, the sequence matters more than the speed:
- Renouncing US citizenship: the exit tax and covered expatriate rules
- What the Streamlined program is
- Accidental American? The Relief Procedures alternative
- Check your eligibility
If you want a read on your specific position before you commit to anything, send us the details and our partner US expat-tax firm, Capital Tax Limited, replies by email with a scope and fee estimate.