What We Know: Alleged Bitcoin Creator Craig Wright's Tax Troubles

Police were quick to raid his home and office in Sydney, Australia, yesterday. The actions have so far ignited speculation as to why authorities are interested in Wright, and whether this has to do with his connection to the digital currency.

So far, the official line from authorities is that the events are unconnected.

According to reports, authorities have attributed the action to an investigation by the Australian Tax Office (ATO), though the timing of the investigation into the matter, it's safe to say, appears suspicious.

For now, the agency is sharing few details. When reached for comment, ATO spokesperson John Hulin told CoinDesk:

This doesn't mean that the community is without clues, however.

Documentation uncovered by WIRED, Gizmodo and Business Insider offers possible insight into to why the ATO is investigating Wright and whether their might be validity to the official claims by authorities.

So far, the most compelling resource offering insight into the matter is a liquidation document for Hotwire Preemptive Intelligence Pty Limited, a bitcoin firm Wright attempted to launch in 2013.

Authored by Hotwire's corporate advisory firm McGrathNicol, the document centers on issues between Hotwire and Australian tax authorities. As reported by Investor Daily, the dispute put a damper on Wright's business plans, which ultimately fizzled as Hotwire’s problems with the ATO worsened.

Where the blame lies in the incident is unclear from available evidence, and may hint at bad blood between Wright and the organization.

McGrathNicol attributes Hotwire's failure, in part, to the ATO, which it alleges did not send AU$3.4m in goods-and-services refunds owed to the company in a timely manner. Also cited were Wright's personal bitcoin losses due to the collapse of the now-defunct Japanese bitcoin exchange Mt Gox,

The document also provides a timeline that details the dispute over the refund.

Elsewhere, Business Insider revealed McGrathNicol has inferred that the ATO put additional pressure on Wright and his business. An update to creditors dated 23rd November shows the ATO assessed a penalty of AU$1.7m to Hotwire because it did not believe the company had a claim to the AU$3.4m.

The matter is being considered by the ATO’s Private Groups & High Wealth Individuals division, according to the update.

Problems between Wright and ATO continued after this dispute, however.

BI further reported that Hotwire filed for a AU$5.5m tax return for 2014, an amount that the publication said has not yet been released to the company by the ATO.

Hotwire’s cash problems appear to be driven by the refund hold-up, and according to the creditor report, there is no indication as of last month as to when the funds will be released – if at all.

Another firm tied to Hotwire, Panopticrypt, appears to be in similar straits owing to ATO scrutiny, according to a November creditors update.

More clues to the nature of the disputes can be found in a transcript outlining a meeting between Wright and ATO representatives on 18th February, 2014, and included in Gizmodo’s report.

Present at the meeting were Wright's accountant, John Chesher, and attorney Andrew Sommer, in addition to Wright himself. Representing the ATO were Dev McMaster, Marina Dolevksi and Hoa Doa.

A subsequent meeting took place on 26th February, and included two representatives from the ATO, Chesher and Wright’s bookkeeper, Ann Wrightson. The minutes for the meeting were published by Gizmodo, though the ATO declined to confirm the veracity of the transcript and minutes to CoinDesk.

It is during the 18th February meeting meeting that Wright pushed for bitcoins to be classified as a kind of currency. As previously reported, it was then Wright claimed he had "been running bitcoin since 2009".

In one set of remarks attributed to Wright's attorney, it's suggested the push to have bitcoin deemed as a form of money for tax purposes would have implications for Hotwire and Wright's other ventures.

In another passage, Sommer went further in the push for the bitcoin-as-money classification. This part of the meeting also offers clues to the structuring of the claimed bitcoin holdings said to be primarily held outside of Australia – with the exception of a transaction involving Hotwire's Denariuz bitcoin bank project.

At one point, attorney Sommer refers to "six different audits" taking place against Wright's businesses. These firms include Coin Exchange, Cloudcroft, Strasan, Denariuz (the bitcoin-only bank) and Hotwire PE.

In the documents, Sommer outlined the nature of the dispute with the ATO as well as a series of events leading up to that meeting in February. In this segment, Sommer suggests that Wright has faced scrutiny from the tax agency as early as 2009.

The documents

also show the ATO scrutinized whether bitcoins were actually paid out between Wright's entities – a line of inquiry that appears to have been complicated by the ATO's limited knowledge of the technology.

Not only does the transcript illuminate the ATO’s query, but it offers clues to the degree of tension between the two sides.

Early in the discussion, Wright and Sommer pointed to an ATO decision made on 30th September that was never sent to them, despite apparent references in other correspondence.

The minutes also suggest Wright's troubles with the ATO appear to have been complicated due to a business association with Mark Ferrier, an Australian citizen who was arrested in 2013 for alleged fraud tied to a venture called MJF Mining Consulting.

Notably, Wright’s reported bitcoin holdings were used to pay for a software transaction, a detail that could be relevant to the ATO as it suggests there is evidence supporting its investigations of his business use of bitcoin.

Pete Rizzo contributed reporting.

Tax confusion image via Shutterstock