MicroStrategy May Face Taxation on Unrealized Bitcoin Gains

MicroStrategy, the largest corporate holder of Bitcoin, could be subject to federal income taxes on its unrealized cryptocurrency gains under the Inflation Reduction Act of 2022. This legislation introduced a 15% corporate alternative minimum tax (CAMT), which applies to adjusted earnings of corporations meeting certain criteria, according to a Jan. 24 report by The Wall Street Journal.

The company, led by Michael Saylor, has amassed over 450,000 BTC, worth more than $48 billion as of its latest purchase on Jan. 13, when it acquired $243 million worth of Bitcoin. Despite never selling any of its holdings, MicroStrategy’s Bitcoin portfolio reflects an unrealized gain exceeding $19.3 billion, according to its portfolio tracker.

While CAMT regulations could impact the firm’s tax obligations, there is speculation that the IRS might introduce exemptions for Bitcoin under a potentially more crypto-friendly administration in the future.

Legal Challenges Surround MicroStrategy

This tax debate surfaces just months after MicroStrategy settled a tax fraud lawsuit on June 3, 2024, agreeing to pay $40 million. The lawsuit, filed by the District of Columbia’s attorney general in August 2022, accused Saylor of evading income taxes for over a decade while residing in the district.

Pushback Against CAMT by Crypto Firms

MicroStrategy, alongside cryptocurrency exchange Coinbase, has voiced opposition to CAMT’s inclusion of unrealized cryptocurrency gains. In a joint letter to lawmakers on Jan. 3, the companies urged the US Treasury and IRS to exclude unrealized crypto gains from adjusted financial statement income (AFSI) to avoid unintended consequences for corporations with significant digital asset holdings.

“The unforeseen combination of CAMT and a newly promulgated accounting standard are creating unjust and unintended tax consequences,” the firms wrote.

Under CAMT, corporations averaging at least $1 billion in AFSI over a three-year period face a 15% minimum tax. This rule could require companies like MicroStrategy to pay taxes on unrealized gains in Bitcoin and other digital assets, a move they argue could stifle corporate innovation and adoption of cryptocurrency in the United States.