MicroStrategy Could Face Billion-Dollar Tax Bill On Unrealized Bitcoin Gains: Wall Street Journal

MicroStrategy has built a bitcoin stash worth around $47 billion, including $18 billion in unrealized gains, through years of stock and debt offerings. However, in an unexpected turn, the company might face federal income taxes on those paper gains, even without selling any bitcoin, according to the Inflation Reduction Act of 2022.

MicroStrategy Could Face 15% Tax on Adjusted Earnings

The new law introduced a “corporate alternative minimum tax,” which means microstrategy microstrategy – Business Intelligence could face a 15% tax rate on an adjusted version of its earnings, as per a recent report from The Wall Street Journal. Notably, the tax applies to companies with $1B+ in annual financial-statement income, calculated using GAAP.

Despite exemptions for stock gains under CAMT rules, the IRS has not extended these to crypto assets. MicroStrategy is lobbying for equal treatment, hoping the Trump administration’s crypto-friendly stance will help. If unsuccessful, the company may have to sell Bitcoin to cover the tax bill, potentially undermining its Bitcoin-focused strategy, as it lacks other profitable ventures.

This could result in a tax bill worth billions starting next year, according to a new disclosure from MicroStrategy that hasn’t gotten much attention.

Microstrategy And Coinbase Oppose CAMT

However, MicroStrategy and Coinbase have opposed the corporate alternative minimum tax (CAMT) regulation. They have asked the US Treasury and IRS to exclude unrealized crypto gains from the adjusted financial statement income (AFSI) to prevent harm to US companies holding large amounts of cryptocurrency. The regulation could make companies pay taxes on unrealized crypto gains if their holdings or other income trigger CAMT.

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IRS to Require Digital Asset Reporting from Exchanges and Brokers in 2025

Notably, Investor interest in crypto tax laws increased after the IRS announced new crypto regulations in June 2024, requiring third-party tax reporting for US crypto transactions. Starting in 2025, centralized exchanges and brokers will report digital asset sales and exchanges.

The report follows MicroStrategy’s agreement on June 3, 2024, to pay $40 million to settle a tax fraud lawsuit accusing the company and CEO Saylor of tax evasion. The lawsuit, filed by the District of Columbia’s attorney general in August 2022, alleged that Saylor had avoided paying income taxes in the district for at least 10 years while living there.