FTX Tussles with the IRS over Alleged Unpaid $24 Billion Tax

• The Internal Revenue Service (IRS) accused FTX of owing several billions in taxes.
• The parties are set to battle the claims out in court.
• FTX still owes $8 billion to an extensive list of creditors.

The collapse of FTX marked one of the most tumultuous chapters of crypto history, resulting in the loss of billions of dollars for investors. Since then, the exchange has grappled with the financial burden of creditor repayment, further worsened in May 2023, when the U.S Internal Revenue Service accused the exchange and its sister firm, Alameda Research , of unpaid tax debt totaling $44 billion.

Despite a subsequent reassessment and a halving of the bill, FTX remains dissatisfied and seeks to eliminate the authority’s claims.

FTX Locks Horns With IRS

In a filing dated December 10,  FTX has disputed the allegations made by the U.S. Treasury Department and the Internal Revenue Service (IRS) regarding unpaid taxes totaling $24 billion.

FTX described the claims as unfounded, arguing that the exchange operated for approximately three years, during which it incurred significant losses and never distributed dividends or earned amounts remotely close to justifying the IRS’s assertion of tax liability.

Asserting that it is currently in liquidation, the exchange emphasized that any recovery for the IRS would come at the expense of other victims, thereby delaying distributions to those genuinely affected. 

Both parties are set to contend the case’s legitimacy in court on December 12, 2023. The resulting $24 billion tax bill will compound its substantial financial burden if the exchange is found guilty. 

FTX’s Bankruptcy Proceedings and Creditor Woes

The exchange’s financial troubles date back to its November 2022 collapse following its filing for Chapter 11 bankruptcy .

The exchange folded with a list of creditors exceeding 50 financial institutions and investors and has since been working towards a resolution that facilitates a fair repayment, including attempts to recuperate funds through legal battles and asset sell-offs .

While a definitive date for the commencement of the repayments has not been established, on October 16, the exchange revealed plans to achieve a 90% settlement by the second quarter of 2024.

The successful repayment of creditors hinges on an array of variables. While FTX has made progress in its attempts to plan a repayment schedule, the ultimate success in recovering sufficient assets to settle with creditors remains uncertain.

On the Flipside

• FTX founder and former CEO Sam Bankman-Fried was convicted of financial fraud on November 2, 2023.
• Bloomberg, Amazon, and LinkedIn are some of FTX’s creditors.
• FTX is in negotiations with three potential buyers for a  potential rebirth of the exchange.

Why This Matters 

A potential victory for the IRS has the potential to set FTX back on its process of facilitating recoveries to plan a repayment process, further dampening the hopes of expectant creditors.

Read more on FX’s efforts to repay creditors:
FTX Debtors to Return 90% of Creditor Holdings to Customers

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