There actually is a Difference between Warren Buffet and Michael Saylor

Every year, someone advocating for higher corporate taxes compiles a list of companies that have paid the least—typically based on their tax rate as a percentage of pretax income reported in financial statements. Inevitably, defenders of corporate tax avoidance respond with the usual refrain: tax accounting (income reported to the IRS) and generally accepted accounting principals (GAAP) accounting (income reported to Wall Street¹) are different.

Technically, they’re right. But they also miss the bigger picture.

The fact that companies can report high profits to investors while minimizing taxable income to the IRS fuels an entire industry of financial engineering—one that comes at a considerable cost. While shareholders might benefit, it’s hard to argue that society as a whole gains anything from this elaborate shell game.

As a result, under the 2022 Inflation Reduction Act (IRA), Democrats created a corporate alternative minimum tax (CAMT) of at least 15 percent of GAAP Net Income² with minor adjustments. One significant adjustment concerned unrealized capital gains. GAAP rules require companies to include changes in the value of assets they hold as net income, on the rationale that shareholders need this information. But this can sometimes produce misleading results.

Take Warren Buffet's Berkshire Hathaway. Famously, this rule caused a 1900% fluctuation in Berkshire Hathaway's net income between 2018 and 2019. To avoid massive fluctuations in tax bills that could dramatically interrupt Buffet's legitimate business practice of putting together a long-term portfolio that delivers value to shareholders, the IRS ruled that, among other things, unrealized capital gains or losses on shares of a "domestic corporation" should not count towards the CAMT. Additional exemptions were granted for insurance companies, corporations emerging from bankruptcy, and firms engaged in hedging activities.

So naturally, when the GAAP, at the end of 2023³, updated its rules to have unrealized gains on crypto assets count towards net income, the crypto industry felt entitled to similar carve outs. Prominently leading the charge has been Michael Saylor's Microstrategy.

Microstrategy's Business Strategy#

Microstrategy operates a small, unprofitable software business. But its real strategy, driven by its charismatic founder: Saylor, is something quite different. Saylor has proudly declared that Microstrategy is "the world’s first Bitcoin treasury company."

In practice, this means that every available dollar is funneled into Bitcoin purchases. The company’s investor relations page touts its own invented metric—"Bitcoin Yield"—which simply measures the annual increase in Bitcoin per share. But in reality, the company is just leveraging every financial avenue available to amass more Bitcoin.

This approach doesn’t exactly generate free cash flow. Despite accumulating $47 billion in Bitcoin, Microstrategy reported negative net income from 2020 to 2024⁴ and received a net tax benefit of $1.26 billion—effectively a subsidy from American taxpayers, which it likely used to buy even more Bitcoin.

Of that current $47, $18 billion is unrealized capital gains. Importantly, these unrealized gains have proven a financial boon to Microstrategy and Saylor. And Microstrategy has aggressively monetized these gains—whether by issuing billions in convertible bonds or, in Saylor’s case, exercising $400 million in stock options. If these unrealized gains are taxed, the company could owe as much as $2.7 billion.

Understandably, Microstrategy does not want to pay these taxes, arguing:

Treasury should exercise this authority to grant the same relief to corporations that invest in crypto [as exists to those that invest in stocks]. Doing so is good policy: Taxing unrealized gains in crypto might require corporations to sell assets just to pay the tax, and it would disincentivize entities from maintaining large holdings of crypto assets.

Some, including Matt Levine, one of my favorite writers on all things finance, find this argument persuasive. I don't.

The claim that taxing unrealized gains on crypto "would disincentivize entities from maintaining large holdings" is at best misleading. It certainly wouldn’t deter holdings of the one type of crypto asset with a proven use case: stablecoins.

On Levine's Money Stuff podcast with Stripe's John Collison, Collison pointed out that in countries like Türkiye, stablecoins offer a safer store of value than politically manipulated national currencies. But stablecoins don’t typically experience unrealized gains—only unrealized losses when their backing turns out to be inadequate.

Bitcoin, however, is a different story. After 16 years, its practical utility remains… elusive. And with companies like Chainalysis making illicit transactions more difficult, Bitcoin’s role as an anonymous financial tool is shrinking. That leaves us with the question: What exactly is its societal benefit?

There’s an old saying, often attributed to tax lawyer Martin Ginsburg, that a country’s tax code reflects its values. The tax code makes concessions for businesses holding shares because those holdings can create economic value. Bitcoin, on the other hand, doesn’t contribute anything tangible to the economy. Why, then, should the tax system treat it the same way?

Given the current administration's embrace of crypto money, I have no doubt about how the IRS will ultimately rule. But let’s not lose sight of what’s really happening here: the Trump administration is making a statement about its values. And those values include letting Microstrategy off the hook for $2.7 billion in taxes.

Footnotes#