MicroStrategy's Bitcoin portfolio has unrealized gains of over $19.3 billion. Surprisingly, even though the company has never sold any Bitcoin, it might still face tax bills on these gains.
According to a report from The Wall Street Journal on January 24, MicroStrategy, led by Michael Saylor, is the largest corporate holder of Bitcoin (BTC). Because of the Inflation Reduction Act of 2022, it could be liable for federal income taxes on its unrealized gains. This act introduced a corporate alternative minimum tax (CAMT) that could impose a 15% tax rate based on adjusted earnings.
However, there’s a chance that the IRS might create an exemption for Bitcoin, especially under the more crypto-friendly policies of former President Donald Trump. MicroStrategy holds more than 450,000 BTC, valued at over $48 billion. Recently, the company purchased $243 million worth of Bitcoin on January 13. Their portfolio tracker shows that their Bitcoin holdings have an unrealized gain of more than $19.3 billion.
This news comes six months after MicroStrategy agreed to pay $40 million on June 3, 2024, to settle a tax fraud lawsuit. The lawsuit accused the company and Saylor of tax evasion. The attorney general of the District of Columbia filed the lawsuit in August 2022, claiming Saylor hadn’t paid income taxes in the district for at least ten years while living there.
MicroStrategy and cryptocurrency exchange Coinbase have pushed back against the CAMT regulation. They’ve asked the U.S. Treasury and IRS to change the final rule to exclude unrealized crypto gains from adjusted financial statement income (AFSI). This change aims to prevent significant unintended consequences for U.S. corporations that hold large amounts of cryptocurrency.
In a joint letter to lawmakers on January 3, they stated, “The unforeseen combination of CAMT and a newly introduced accounting standard creates unjust and unintended tax consequences.” They explained that CAMT imposes a 15% minimum tax on any corporation with an AFSI averaging at least $1 billion over the previous three years.
They also noted, “Because the standard affects a corporation’s AFSI, companies that own appreciated crypto must now pay tax on unrealized gains.”
Interest in crypto tax laws has surged since the IRS announced new regulations in June 2024. Starting in 2025, centralized crypto exchanges (CEXs) and other brokers will be required to report sales and exchanges of digital assets, including cryptocurrencies. This is the first time U.S. crypto transactions will be subject to third-party tax reporting.
The IRS aims to help investors file accurate tax returns regarding digital asset transactions and address potential noncompliance. However, this move could push crypto investors toward decentralized platforms, creating a paradox that might complicate tracking tax revenue. Anndy Lian, a blockchain expert, shared this insight with Cointelegraph.
In response to the new rules, the Blockchain Association filed a lawsuit against the IRS in December 2024. They argue that the regulations are unconstitutional because they classify decentralized exchanges under the term “broker,” extending data collection requirements to them.