Key takeaways
- MicroStrategy plans to redeem $1.05 billion in convertible notes due to potential tax consequences of CAMT.
- CAMT imposes a 15% tax rate on companies like MicroStrategy with significant GAAP income from Bitcoin holdings.
MicroStrategy has announced plans to redeem $1.05 billion in 0% convertible senior notes due 2027.
This decision comes as the company faces potential tax consequences under new CAMT (Corporate Alternative Minimal Tax) rules introduced by the Inflation Reduction Act 2022.
MicroStrategy, the world’s largest Bitcoin holding company, may be subject to federal income tax on its $18 billion in unrealized Bitcoin profits.
CAMT implements a minimum tax rate of 15% based on adjusted GAAP income in financial statements, according to a Report by the Wall Street Journal.
GAAP earnings represent earnings reported under standardized accounting rules, including certain unrealized gains such as Bitcoin’s appreciation.
CAMT targets companies that report significant GAAP earnings but minimal taxable income on IRS filings.
While companies like Berkshire Hathaway received exemptions for unrealized stock gains, no such provisions exist for crypto assets. MicroStrategy, which holds $47 billion in Bitcoin, continues to lobby the IRS for similar treatment.
“The IRS may ultimately exclude unrealized crypto profits, especially under a Trump administration, which has historically supported pro-crypto policies,” tax analyst Robert Willens told the Wall Street Journal, while noting that such exemptions are not guaranteed.
Noteholders may convert their securities into Class A common stock prior to February 20, 2025, with conversions settled in shares and fractional shares paid in cash.
The company’s tax situation is further complicated by new Financial Accounting Standards Board rules that require reporting the fair value of crypto assets in 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.
