MicroStrategy may be required to pay taxes on $19B in unrealized Bitcoin gains

The unrealized gains of MicroStrategy’s Bitcoin portfolio exceed $19.3 billion.

Despite the fact that it has never sold any Bitcoin, MicroStrategy may be required to pay taxes on its unrealized gains.

According to the Inflation Reduction Act of 2022, MicroStrategy, the largest corporate Bitcoin bearer, may be required to pay federal income taxes on its unrealized gains.

The Wall Street Journal reported on January 24 that the act instituted a “corporate alternative minimum tax” that would allow MicroStrategy to qualify for a 15% tax rate based on the amended version of the company’s earnings.

Nevertheless, the US Internal Revenue Service (IRS) may establish an exemption for Bitcoin (BTC) under President Donald Trump’s more crypto-friendly administration.

After purchasing $243 million of Bitcoin on January 13, MicroStrategy’s holdings have exceeded 450,000 BTC, which is equivalent to over $48 billion.

MicroStrategy’s portfolio tracker indicates that the company’s Bitcoin holdings currently have an unrealized gain of more than $19.3 billion.

Six months have passed since MicroStrategy and Saylor reached an agreement on June 3, 2024, to pay $40 million to resolve a tax fraud lawsuit that accused them of tax evasion.

In August 2022, the attorney general of the District of Columbia filed a lawsuit against Saylor and MicroStrategy, asserting that the executive had failed to pay income taxes in the district for a minimum of ten years during his residence.

MicroStrategy and Coinbase, a cryptocurrency exchange, have opposed the corporate alternative minimum tax (CAMT) regulation.

AFSI stands for “adjusted financial statement income.” The two companies have asked the US Treasury and IRS to change the final rule so that “serious unintended consequences” don’t happen to US companies that hold a lot of cryptocurrency.

In a joint letter to legislators on January 3, the two companies stated: “The unanticipated and discriminatory tax consequences are resulting from the unforeseen combination of CAMT and a recently promulgated accounting standard.” CAMT imposes a minimal tax of 15% on the AFSI of any corporation whose AFSI averaged at least $1 billion in the previous three years.

The letter stated that corporations that own a sufficient amount of appreciated crypto (or have a sufficient amount of other book income) to be subject to CAMT must now pay tax on unrealized gains in the value of that cryptocurrency, as the standard effects a corporation’s AFSI.

After the IRS issued a new crypto regulation in June 2024, investor interest in crypto tax laws increased. This regulation will subject US crypto transactions to third-party tax reporting obligations for the first time.

Commencing in 2025, centralized crypto exchanges (CEXs) and other brokers will commence reporting the sales and exchanges of digital assets, including cryptocurrencies.

According to the IRS, the purpose of the decision is to assist investors in “filing accurate tax returns with respect to digital asset transactions” and to mitigate potential noncompliance in digital currency.

Anndy Lian, an author and intergovernmental blockchain expert, stated to Cointelegraph that this decision could result in crypto investors transitioning to decentralized platforms, which could create a “paradoxical situation” that would complicate the tracking of tax revenue.

The Blockchain Association filed a lawsuit against the IRS in December 2024, showcasing the crypto industry’s opposition. The association argued that the rules are unconstitutional because they extend data collection requirements to decentralized exchanges under the “broker” term.

Also Read: South Korea’s Goyang City Takes Crypto Worth More Than $228,000 from Traffic Offenders