MicroStrategy Faces Billion-Dollar CAMT Tax Threat on Unrealized Bitcoin Gains

MicroStrategy has built an enormous Bitcoin stash valued at around $47 billion, including $18 billion in unrealized gains, thanks to years of stock and debt offerings. However, a surprising shift in federal tax rules could force the company to pay taxes on these unrealized gains—even without selling any Bitcoin—under the Inflation Reduction Act of 2022.

The Corporate Alternative Minimum Tax Explained

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.

A Multi-Billion Dollar Tax Bill Looms

MicroStrategy could face a tax bill running into billions starting next year, according to recent disclosures. Despite the magnitude of this potential burden, it has drawn relatively little public attention so far. The implications for the company’s long-term strategy could be significant.

Industry Opposition to CAMT Regulations

MicroStrategy and Coinbase are strongly opposing the CAMT regulation. They have urged the US Treasury and IRS to exclude unrealized cryptocurrency gains from the adjusted financial statement income (AFSI). Both argue this change is necessary to prevent unfair taxation on theoretical profits and to protect US companies holding large crypto reserves.

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Under the current rules, companies whose holdings or income meet CAMT thresholds could be taxed on unrealized crypto gains. This prospect has raised concerns about the financial strain it could impose, even on major players in the industry.

Legal Troubles Add Pressure

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.

The stakes are high, not only for MicroStrategy but for the broader cryptocurrency industry as well.