I have encountered a bug considering the 'Killed last witness, bounty removed' event.

Basically it goes like this:

* I acquire a bounty by attacking someone.

* I kill everyone around, resulting in the 'Killed last witness' message. This resets my bounty to 0

* When I encounter guards, they start attacking me, as if I have a bounty. But since I do not have one, they can't arrest me, which means I can't make them stop attacking me.

* The guards keep on until I acquire a bounty (usually by killing one of them), in which case they can arrest me, allowing me to pay them, making them stop.

Is there anyone else who encountered this bug? If so, how can this be fixed?

I noticed this before. I attacked a group of Thalmor traveling north to Whiterun from Riverwood. I killed them all, saw that my bounty was removed, traveled to Riverwood, and was attacked by guards. It was only the guards in Riverwood who attacked me, not any other Whiterun guard. It is odd, but I don't know of any other fix than getting a legit bounty so you can be arrested.

Lol, the exact same circumstance plauged me. I even killed the prisoner that the Thalmor had with them.

last i know, the vanilla game has the "crimed reported" in a huge range/distance, very unrealistic.

i used a mod that reduced this range to realistic number, i suggest you try it.
i got this mod from Nexus, try a search with crime and/or range