MicroStrategy to redeem $1.05 billion in convertible notes amid crypto tax uncertainty

The business software firm MicroStrategy opted to redeem $1.05 billion worth of 2027 convertible notes and to use the firm's shares to settle all conversion requests, according to a Friday press release.

The move could be an attempt to mitigate the firm's debt and entice noteholders to convert to company equity. A note will be converted at a rate of 7.0234 shares of MicroStrategy's class A common stock (MSTR) for every $1,000 of principal amount, the release continues. In other words, that's $142.38 per share of MSTR for a convertible note, nearly half of MSTR's current share price of $374.36.

MicroStrategy is the largest corporate holder of bitcoin. The firm owns 461,000 BTC worth valued at around $48 billion, most recently purchasing an 11,000 bitcoin lot for $1.1 billion.

Due to provisions under the 2022 Inflation Reduction Act, MicroStrategy may have to pay up to $18 billion in realized bitcoin gains despite the firm never selling a token, according to reporting from The Wall Street Journal. Taxation rule changes from the Internal Revenue Service, influenced by the Trump administration's pro-crypto agenda , could free MicroStrategy from the requirement. The agency had previously cleared the U.S.-based holding company Berkshire Hathaway from having to pay unrealized gains taxes for its securities.

Tax analyst Robert Willen tells the WSJ that "there's no real different in the accounting" between crypto assets and stocks for the unrealized gains tax exemptions, and so he expects the IRS to rule in MicroStrategy's favor.