Key takeaways:
- The United States Internal Revenue Service (IRS) and bankrupt crypto exchange FTX tentatively reached an agreement.
- In exchange for agreeing to settle the IRS’s $24 billion claim, $200 million in priority tax claims would be paid within 60 days of the plan’s approval.
The United States Internal Revenue Service (IRS) and bankrupt crypto exchange FTX tentatively reached an agreement.
According to a June 3 document, the exchange and the IRS reached an agreement to resolve a $24 billion tax dispute. FTX’s tax liability was subsequently found to be less than the IRS’s initial allegation of more than $44 billion. The court’s approval of FTX’s reorganization plan is a prerequisite for the settlement.
In exchange for agreeing to settle the IRS’s $24 billion claim, $200 million in priority tax claims would be paid within 60 days of the plan’s approval. In addition, the tax authority will collect $685 million as a subordinated claim, which will be paid after creditors and customers.
All tax claims are covered by the agreement until October 31, 2022. FTX claims that the settlement raises confidence about creditor and consumer recovery while lowering litigation risk.
“The outcome of these proceedings would be uncertain given certain novel and complex issues of tax law raised by the IRS Claims.”
According to the petition, FTX disagrees with the precise amount and reasons for the tax liability but does not deny having to pay taxes.
In particular, the exchange claims that money that its previous CEO, Sam Bankman-Fried, stole shouldn’t be taxed. Additionally, it conflicts with the IRS’s employment tax computations about the compensation given to SBF and other executives.
The exchange further claims it has legitimate losses and deductions that the IRS is incorrectly rejecting because it lacks the necessary paperwork. The tax authority, on the other hand, disagreed and was ready to go to court to force FTX to pay a sizeable amount of taxes:
“The IRS does not agree with the Debtors’ arguments and has informed the Debtors that absent a settlement it would pursue these and other theories to impose significant tax liability.”
On May 8, FTX unveiled a revised repayment plan with the goal of paying back all outstanding debts in full as well as some extra money.
FTX estimated that this would represent “98% of the creditors” of FTX by number. Only creditors with claims in an allowable amount under $50,000 will be eligible for a 118% recovery. In November 2022, when FTX collapsed, repayments would be made in accordance with the asset value.
