Under recent accounting rule changes, unrealized crypto gains must generally be reported on income statements, but questions arise about the alignment of the new Corporate Alternative Minimum Tax with constitutional tax principles.
By Andrew Strelka and Angelina Richards
Recent developments in taxation have brought cryptocurrency into the spotlight. The US Supreme Court’s 2024 ruling in Moore v. United States upheld a tax on undistributed foreign earnings, setting a precedent that could affect how unrealized gains are taxed under the new Corporate Alternative Minimum Tax (CAMT). This development comes on the heels of new accounting rules from the Financial Accounting Standards Board (FASB), which require corporations to generally recognize changes (including unrealized gains) in the fair value of cryptoassets on their income statements (for more information, see this Latham blog post).
Recently proposed CAMT regulations (REG-112129-23) are silent on the specific treatment of cryptoassets under the new tax aimed at the financial statement income of large corporations. The failure to remove unrealized cryptoasset gains from adjusted financial statement income places the entire regime in constitutional jeopardy. This is because the CAMT could be seen as a direct tax on property, which would necessitate apportionment among states under Article I, Section 8, Clause 1 of the US Constitution — a civil-war-era legal requirement not traditionally applied to income taxes, and likewise affirmed in Moore.
In this article published in Tax Notes Federal, Latham lawyers Andrew Strelka and Angelina Richards examine the constitutional problem facing the proposed CAMT regulations due to Treasury’s failure to include an adjustment for cryptoassets. The article suggests a straightforward solution: remove unrealized crypto gains from adjusted financial statement income in the final CAMT regulations.