MicroStrategy to trade $1.05 billion in convertible notes amid concerns over bitcoin tax rules

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MicroStrategy announced plans to repurchase $1.05 billion in 0% convertible senior notes due in 2027.

The move comes as the company faces potential tax implications under new Corporate Alternative Minimum Tax (CAMT) rules introduced by the Inflation Reduction Act in 2022.

MicroStrategy, the world’s largest Bitcoin holding company, could be subject to federal income taxes on its $18 billion in unrealized Bitcoin gains.

CAMT implements a minimum tax rate of 15% based on adjusted GAAP financial income, according to a Wall Street Journal report.

GAAP income represents profits reported under standardized accounting rules, including some unrealized gains like the value of bitcoin’s value.

CAMT targets companies reporting substantial GAAP profits but minimal taxable income on IRS filings.

While companies like Berkshire Hathaway have received exemptions for unrealized stock gains, there are no such provisions for crypto assets. Microstrategy, holding $47 billion in Bitcoin, continues to lobby the IRS for similar treatment.

“The IRS may ultimately exclude unrealized crypto gains, especially in a Trump administration, which has historically supported pro-Crypto policies,” tax analyst Robert Willens told the Wall Street Journal, while noting that many such exemptions are not guaranteed.

Noteholders may convert their securities into shares of Class A common stock before February 20, 2025, with conversions settled in shares and split shares paid in cash.

The company’s tax situation is further complicated by new Financial Accounting Standards Board rules requiring reporting of the fair value of crypto assets on balance sheets.

MicroStrategy recently reported a $4 billion increase in deferred tax liabilities and a $12.8 billion increase in retained earnings under the new framework.

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