MicroStrategy Faces $2.6B Tax Bill on Bitcoin Holdings
MicroStrategy, the leading corporate Bitcoin holder, faces a potential tax bill of over $2.6 billion due to the Inflation Reduction Act. Starting in 2025, the company will need to account for its Bitcoin at fair value, potentially reporting investment gains of several billion dollars.
MicroStrategy and Coinbase recently argued to the US Internal Revenue Service (IRS) for an exemption from paying taxes on unrealized gains for companies with significant crypto holdings. However, according to interim IRS guidelines, this 15% tax will not be applied, at least for now.
The Corporate Alternative Minimum Tax (CAMT) requires a 15% tax on corporate profits calculated using generally accepted accounting principles. If MicroStrategy's average profit over three years exceeds $1 billion, it may be subject to this tax. With unrealized gains of around $17.5 billion, a 15% tax would amount to over $2.6 billion.
MicroStrategy's business model focuses on accumulating more Bitcoin and increasing the ratio of Bitcoin per share. Taxes on unrealized gains could negatively impact this strategy. There's a chance the US tax authority may introduce a special rule exempting companies with Bitcoin holdings from paying taxes on unrealized gains.
MicroStrategy, with its substantial Bitcoin holdings, could face a significant tax bill under the Inflation Reduction Act. If the company cannot pay the tax bill through other means, it may have to sell some of its Bitcoin. The situation is subject to change based on potential IRS exemptions.
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