According to *The Wall Street Journal*’s reports Washington D.C. company MicroStrategy faces federal income tax obligations on their $19.3 billion Bitcoin unrealized profit when the Inflation Reduction Act of 2022.
The Inflation Reduction Act created a corporate alternative minimum tax (CAMT) system with 15% rates using a company’s adjusted financial statement income (AFSI) as its basis for calculation.
The rules would trigger taxation of MicroStrategy’s Bitcoin holdings presuming they pass threshold requirements even though the company has not sold any digital assets. A recent $243 million Bitcoin buy from January 13 has pushed the company’s cryptocurrency portfolio to 450000 BTC which currently exceeds $48 billion.
Bitcoin Holders Challenge CAMT
MicroStrategy with its executive chairman Michael Saylor fights the CAMT rules together with cryptocurrency exchange Coinbase. The companies wrote to U.S. lawmakers on Jan. 3 as part of a joint document that requested the Treasury Department and Internal Revenue Service (IRS) to remove unrealized cryptocurrency gains from adjusted income determination.
Big crypto asset holders face potentially severe negative ramifications from implementing this form of taxation according to the letter’s warning. The Trump administration’s anticipatedcrypto-friendly stance provides uncertainty about whether Bitcoin will receive its tax exemption from IRS regulations.
Since the IRS released new regulations in June 2024 the contentious debate about crypto taxation continues because the agency established third-party tax reporting rules that will become mandatory for U.S. crypto transactions in 2025. To promote tax compliance this rule requires centralized exchanges and brokers to disclose information about digital asset sales and exchanges.
Tax enforcement becomes harder when regulators impose these measures because investors start working with decentralized crypto platforms instead of centralized ones. The encryption expert Anndy Lian characterized the novel predicament as a “paradoxical situation” which impeded tracking of income streams.
“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.”
The Blockchain Association initiated a legal challenge to the IRS over its expanded broker definition that now extends to decentralized exchanges during December 2024.
The tax legal battle between MicroStrategy and investors continued as the company paid a $40 million settlement in June 2024. The legal complaint accused Saylor of avoiding paying income taxes in his homebase Washington, D.C. since 2013.
In the face of rising regulatory scrutiny the crypto industry actively challenges rules which could revolutionize how companies deal with tax obligations within U.S. borders.
