For years, MicroStrategy (MSTR) founder Michael Saylor has been complaining that regulators have been unfairly forcing him to undervalue bitcoin (BTC) as a company asset. As of January 1, 2025, he bought his want — and may need created an sudden, multi-billion greenback tax invoice within the course of.
Previous to 2025, Monetary Accounting Requirements Board’s (FASB) reporting requirements for Securities and Alternate Fee (SEC) filings labeled MicroStrategy’s BTC as an “indefinite-lived intangible asset.”
This designation required MicroStrategy, as a public firm, to completely mark down the worth of its BTC when it declined in USD worth. Completely marked down, the corporate might by no means mark up the worth once more, except it truly offered the asset.
Saylor decried this unfair remedy, claiming it was lunacy to not be capable of report a achieve after a markdown at the same time as BTC’s worth rebounded.
Saylor fought for an ostensibly BTC-friendly change to FASB accounting requirements for public corporations. He bought his want through rule change ASU 2023-08 — which instantly backfired within the type of billions in upcoming tax liabilities.
Bitcoin as an indefinite-lived intangible asset
For context, this rule change concern particularly applies to company tax remedy of BTC; this isn’t a tax concern for people.
As of January 1, the FASB permits firms to reclassify BTC, that means that they could now file positive aspects when its worth will increase. Corporations can checklist their BTC holdings at their actual greenback worth as of the reporting date, together with worth modifications from quarter to quarter.
Critically, if MicroStrategy decides to opt-in to accounting requirements based mostly on this reclassification, it will imply that may qualify for a brand new minimal tax and will owe a 15% unrealized positive aspects tax on its as much as $17 billion in unsold BTC revenue.
Usually, capital positive aspects taxes solely apply after somebody sells an asset. Nevertheless, in 2022, Congress handed the Inflation Discount Act which added a brand new, “corporate alternative minimum tax” and was a significant change to the FASB’s accounting guidelines.
Shock taxes on MicroStrategy’s unsold BTC
At first, some doubted whether or not the idea of taxes on unsold belongings was true, however it appears to be the case.
In accordance with WSJ’s Jonathan Weil and Simplify Asset Administration Chief Analyst Michael Inexperienced, opting-in to the power to mark-to-market its BTC positive aspects signifies that MicroStrategy must pay taxes on even unrealized positive aspects beginning as early as 2026.
No, it’s a present legal responsibility. Identical remedy as merchants in S&P futures
— Michael Inexperienced (@profplum99) January 24, 2025
The identical remedy is given to merchants in undelivered futures merchandise. Sadly, within the advanced IRS system, typically tax will be due earlier than the achieve is definitely realized.
On account of the rule change, MicroStrategy is in search of assist from the Trump administration. At this level, solely politics can alter IRS guidelines to exempt corporations from paying taxes on such unrealized positive aspects.
MicroStrategy even admitted to this minimal tax in its latest quarterly submitting. On web page 6, it states that it’s “currently evaluating the potential implications of unrealized fair value gains” as a result of the corporate’s mark-to-market valuation of its BTC might make the corporate topic to the Company Different Minimal Tax (CAMT) “in the tax years 2026 and beyond unless the proposed regulations with respect to CAMT are revised to provide relief.”
Thus far, the IRS hasn’t carved out BTC or digital asset holdings in any exemption from its new, company various minimal tax.