rewrite this title Prominent Cryptocurrency Investor Faces Senate Tax Inquiry

A Senate committee is investigating whether a prominent cryptocurrency investor violated federal tax law to save hundreds of millions of dollars after he moved to Puerto Rico, a popular offshore tax haven, according to a letter reviewed by The New York Times.

Senator Ron Wyden, an Oregon Democrat, sent the letter on Jan. 9 to Dan Morehead, the founder of Pantera Capital, one of the largest crypto investment firms.

The letter said the Senate Finance Committee was investigating tax compliance by wealthy Americans who had moved to Puerto Rico to take advantage of a special tax break for the island’s residents that can reduce tax bills to zero.

The investigation was focused on people who had improperly applied the tax break to avoid paying taxes on income that was earned outside Puerto Rico, according to the letter.

“In most cases, the majority of the gain is actually U.S. source income, reportable on U.S. tax returns, and subject to U.S. tax,” the letter said.

The letter requested detailed information from Mr. Morehead about $850 million in investment profits he made after moving to Puerto Rico in 2020, noting that he “may have treated” the gains as exempt from U.S. taxes.

Mr. Morehead said in a statement that he moved to Puerto Rico in 2021. “I believe I acted appropriately with respect to my taxes,” he said.

Mr. Wyden was chairman of the Finance Committee until Republicans took control of the Senate last month. During his tenure, the committee investigated several strategies that wealthy Americans have used to avoid paying taxes.

It is unclear what may come of the investigation. Under the Biden administration, federal regulators and Democratic lawmakers cracked down on the crypto industry and prominent tech figures. President Trump and Republicans in Congress have embraced crypto, promising less aggressive enforcement.

A spokesman for Mr. Wyden said the investigation was “ongoing” and declined further comment. A spokeswoman for the Finance Committee’s new chair, Senator Michael D. Crapo of Idaho, did not respond to a request for comment.

For more than a decade, wealthy Americans, including many tech entrepreneurs, have flocked to Puerto Rico to take advantage of Act 60, a tax break established in 2012 under a different name. Any capital gains income generated in the U.S. territory isn’t subject to local or federal income tax.

In recent years, the Justice Department, the Internal Revenue Service and lawmakers have investigated abuses of that system. The I.R.S. has said its criminal division identified about 100 people who may have committed tax evasion.

A former Goldman Sachs trader, Mr. Morehead founded Pantera in the early 2000s and turned it into one of the largest investment firms focused on crypto, backing more than 100 crypto companies over the last 12 years. Those include major U.S. crypto firms such as Circle, Ripple and Coinbase, which operates the largest marketplace for digital currencies in the United States.

After Mr. Morehead moved to Puerto Rico, Pantera sold “a large position” and generated capital gains “in excess of $1 billion,” according to Mr. Wyden’s letter. Mr. Morehead’s share of the gains totaled more than $850 million, the letter said.

The letter asked Mr. Morehead to share information related to those transactions, including the names of his tax advisers. It also asked him to share a list of any assets he sold while a resident of Puerto Rico, including cryptocurrencies.