Tax evasion attempt fails! Michael Saylor settles Washington D.C. tax fraud lawsuit for $40 million

Michael Saylor, founder of the U.S. software company MicroStrategy, was indicted by the Attorney General of the District of Columbia, Washington D.C., in August 2022, alleging that he had resided in the district for over 10 years without ever paying any income tax, and MicroStrategy was also accused of conspiring to help evade taxes. According to a report by CNBC, Michael Saylor and MicroStrategy have agreed to pay $40 million to settle the tax fraud lawsuit.

Changing Residences to Evade Washington DC Income Tax

According to recent reports, Washington DC Attorney General Karl A. Racine has filed charges in August 2022 against the billionaire tech company CEO, alleging that he has resided in the district for over a decade but has never paid Washington DC income tax, leading to accusations of tax fraud. The lawsuit also implicates MicroStrategy Inc. for allegedly aiding him in tax evasion. Reports suggest that the tax amount exceeds $25 million, and if convicted, he will be required to pay back taxes, triple damages, civil penalties, and other associated costs.

It is reported that Saylor resides in a top-floor apartment in Washington DC overlooking the Georgetown waterfront, with his yacht moored on the Potomac River. However, he has presented himself as a resident of Florida or Virginia, where MicroStrategy's headquarters are located, purchasing properties and registering to vote in these states. Yet, he spends more than 183 days per year in Washington DC, a basic requirement to be considered a "domiciliary."

In addition to federal taxes, US citizens who qualify as residents under state law and have income from sources within the state are required to file state income taxes in their state of residence. With varying tax rates across different states in the vast US, according to the latest data from the Tax Foundation, Washington DC has a tax rate as high as 10.75%, while Florida has no state income tax. It is no wonder that Saylor sought to evade the high income tax rates by changing his residential address.

Saylor Agrees to Settlement to Avoid Litigation Burden

According to the allegations by the Attorney General, MicroStrategy assisted Saylor in concealing his residence in Washington DC to avoid higher income taxes, and the company also failed to pay corporate taxes required for a company employing residents of Washington DC.

Attorney General Schwalb stated in a release:

Saylor openly boasted about his tax evasion scheme, encouraging his friends to follow suit and claiming that anyone paying taxes to the district is foolish.

Saylor denied the Attorney General's allegations and stated in a statement to CNBC:

Florida remains my home, and I continue to dispute the allegations that I was once a resident of the District of Columbia. I have agreed to settle this matter to avoid ongoing burdens for my friends, family, and myself.