MicroStrategy to redeem $1.05B in convertible notes amid concerns over Bitcoin tax rules

Key Takeaways

• MicroStrategy plans to redeem $1.05 billion in convertible notes due to potential tax implications from the CAMT.
• The CAMT poses a 15% tax rate on companies like MicroStrategy with substantial GAAP earnings from Bitcoin holdings.

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

This decision 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.

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

GAAP income represents earnings reported under standardized accounting rules, including certain unrealized gains like Bitcoin’s value increases.

The CAMT targets companies reporting substantial 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, holding $47 billion in Bitcoin, continues lobbying the IRS for similar treatment.

“The IRS may ultimately exclude unrealized crypto gains, 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 aren’t guaranteed.

Note holders can convert their securities into class A common stock before February 20, 2025, with conversions settled in stock and fractional shares paid in cash.

The company’s tax situation is further complicated by new Financial Accounting Standards Board rules requiring fair value reporting 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.