Despite never selling any Bitcoin, MicroStrategy may have to pay taxes on its unrealized gains.
Michael Saylor’s MicroStrategy, the largest corporate Bitcoin (BTC) holder, may have to pay federal income taxes on its unrealized gains, according to the Inflation Reduction Act of 2022.
The act established a “corporate alternative minimum tax” under which MicroStrategy would qualify for a 15% tax rate based on the adjusted version of the company’s earnings, according to Jan. 24 report in The Wall Street Journal.
Still, the US Internal Revenue Service (IRS) may create an exemption for BTC under President Donald Trump’s more crypto-friendly administration.
MicroStrategy’s holdings have surpassed 450,000 BTC, worth more than $48 billion, after the company bought $243 million of BTC on Jan. 13.
MicroStrategy Bitcoin portfolio, unrealized gains. Source: Saylortracker
According to MicroStrategy’s portfolio tracker, the company’s Bitcoin holdings have an unrealized gain of over $19.3 billion.
The report comes six months after MicroStrategy agreed on June 3, 2024, to pay $40 million to settle a tax fraud lawsuit that had accused it and Saylor of tax evasion.
The attorney general of the District of Columbia sued Saylor and MicroStrategy in August 2022, alleging the executive had paid no income taxes in the district for at least 10 years while he lived there.
Related: MicroStrategy bought 11K BTC the week before Trump’s inauguration
MicroStrategy and Coinbase push against corporate alternative minimum tax
MicroStrategy and cryptocurrency exchange Coinbase have pushed back against the corporate alternative minimum tax (CAMT) regulation.
MicroStrategy, Coinbase, joint letter to IRS, treasury. Source: regulations.gov
The two firms have requested that the US Treasury and IRS adjust the final rule to exclude unrealized crypto gains from the adjusted financial statement income (AFSI) to “avoid serious unintended consequences to US corporations holding substantial cryptocurrency.”
The two firms wrote in a joint letter to lawmakers on Jan. 3:
“The unforeseen combination of CAMT and a newly promulgated accounting standard are creating unjust and unintended tax consequences… CAMT imposes a 15% minimum tax on the AFSI of any corporation whose AFSI averages at least $1 billion in the prior three-year period.”
“Because the standard affects a corporation’s AFSI, corporations that own enough appreciated crypto (or have enough other book income) to be subject to CAMT must now pay tax on unrealized gains in the value of that cryptocurrency,” the letter stated.
Related: FTX to begin distributing $1.2B to creditors after Trump inauguration
US crypto tax laws gain prominence after IRS issued crypto tax guidelines in 2024
Crypto tax laws gained increased investor interest in June 2024 after the IRS issued a new crypto regulation, which will make US crypto transactions subject to third-party tax reporting requirements for the first time.
Starting in 2025, centralized crypto exchanges (CEXs) and other brokers will start reporting the sales and exchanges of digital assets, including cryptocurrencies.
According to the IRS, the decision aims to help investors “file accurate tax returns with respect to digital asset transactions” and to address potential noncompliance in digital currency.
This decision could push crypto investors to decentralized platforms in a “paradoxical situation” that could make tax revenue harder to track, Anndy Lian, author and intergovernmental blockchain expert, told Cointelegraph.
Showcasing the crypto industry’s backlash, the Blockchain Association filed a lawsuit against the IRS in December 2024, arguing that the rules are unconstitutional because they include decentralized exchanges under the “broker” term, extending data collection requirements to them.
What was Michael Saylor’s Mistake? Source: YouTube
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