Bankrupt Crypto Exchange FTX and IRS Reach Tentative $24 Billion Tax Dispute Settlement
Summary:
FTX, a bankrupt cryptocurrency exchange, has reached a preliminary agreement with its primary creditor, the US Internal Revenue Service (IRS), to settle a $24 billion tax dispute. According to the terms, the IRS will settle its claim for $200 million, paid within 60 days of a court-approved plan, along with a $685 million subordinated claim. The settlement covers all tax claims until October 31, 2022, reducing litigation risk and providing clarity for creditor and customer recovery. FTX is contesting certain IRS decisions, such as taxing funds misappropriated by its former CEO, and calculations for employment taxes. A new repayment plan proposed by FTX aims to reimburse all claims and offer additional compensation, with priority given to small-scale creditors.
FTX, a cryptocurrency exchange facing bankruptcy, has provisionally reached a settlement with its major creditor, the United States Internal Revenue Service (IRS). Documents submitted on June 3 suggest that the IRS and FTX have settled on resolving a $24 billion tax dispute. Initially, the IRS charged FTX with owing over $44 billion in taxes; however, this figure was later decreased. The settlement is conditioned on the court’s approval of FTX’s reorganization strategy.
As a part of the settlement, the IRS concurs to absolve its $24 billion claim with a compensation of $200 million to be paid within two months upon the plan's approval. Additionally, it will recover $685 million as a subordinated claim following the payments to customers and other creditors. This arrangement covers all tax claims up until October 31, 2022. FTX indicates that such an agreement minimizes the litigation risk and enhances the predictability surrounding the recovery of creditors and customers.
FTX does not refuse the requisite to pay taxes but debates the claimed amount and specific grounds for the liability. Specifically, FTX contends that it is not liable for the taxes on the funds misappropriated by its previous CEO, Sam Bankman-Fried, and contests the IRS' methodology of calculating employment taxes in relation to the compensations paid to Bankman-Fried and other executives.
Also, FTX argues that the IRS incorrectly dismisses valid deductions and losses due to a lack of appropriate documentation. However, the IRS is ready to challenge FTX in court for a significant tax payment unless a settlement is reached.
FTX presented a new repayment plan for creditors on May 8, intending to reimburse all claims along with some additional payments. The recovery of 118%, which applies only to creditors with claims below $50,000, is expected to benefit "98% of the creditors of FTX by number". The repayment is decided by the value of assets at the time FTX declared bankruptcy in November 2022. The magazine mentions that Mashinsky could face a shorter jail term than SBF; this report is based on the Inner City Press, X Hall of Flame.
Published At
6/4/2024 8:05:08 PM
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