MicroStrategy Risks Facing Tax on $19 Billion Unrealized Bitcoin Profit

The federal government may hit MicroStrategy with a $2.9 billion tax bill on its unrealized cryptocurrency gains.
This is according to a report by the Wall Street Journal.

The largest corporate holder of Bitcoin, despite not selling any of its over 460,000 BTC, currently valued at more than $48 billion, faces potential tax liabilities under the Corporate Alternative Minimum Tax (CAMT) provision.

The CAMT imposes a 15% minimum tax on corporations with an average adjusted financial statement income of $1 billion or more over three years. For MicroStrategy, its unrealized gains of over $19.3 billion from 461,000 BTC holdings could fall under this provision. This means the company, despite not selling any Bitcoin, may owe billions in taxes.

Why Microstrategy Faces a $2.9 Billion Tax Bill

Microstrategy’s ambitious Bitcoin investment strategy has raked in enormous profits but the $19 billion in profit has also brought with itself a huge tax bill. As per a report from the Wall Street Journal, Federal regulations might force the firm to pay income taxes on its unrealized BTC profits under the 2022 Inflation Reduction Act (IRA).

However, it appears unlikely that the tax bill will be enforced. Pro-crypto advocates Donald Trump could offer Michael Saylor the much-needed haven. For now, the idea of taxing unrealized gains remains a proposal introduced by the U.S. government under Joe Biden, with no clear plan of implementation.

MicroStrategy and other major crypto firms, like Coinbase, are opposing the CAMT regulations. In a joint letter to lawmakers, the companies urged the U.S. Treasury and IRS to exclude unrealized cryptocurrency gains from AFSI calculations.

“The unforeseen combination of CAMT and a newly promulgated accounting standard are creating unjust and unintended tax consequences that Treasury should promptly address” the letter reads.

MicroStrategy’s Strategy Amid Challenges

MicroStrategy is still bullish on Bitcoin despite the changing regulatory environment. Recently, the company bought an additional $243 million worth of Bitcoin, bringing its total holdings to over 450,000 BTC valued at $48 billion.

MicroStrategy has also increased its authorized Class A shares from 330 million to 10.3 billion, aiming to raise $42 billion through equity and convertible note offerings by 2027.

Following the news of the looming tax bill, the firm’s stock, MSTR, took a 1.11% decline over the past 24 hours. Nevertheless, MSTR has seen a 12% surge in its stock price to $430 per share, driven by Bitcoin’s recent all time highest.