Bankrupt crypto exchange FTX has reached a tentative agreement with its largest creditor, the United States Internal Revenue Service (IRS), to settle a $24 billion tax dispute. This agreement, which hinges on court approval, is a significant step forward in the FTX bankruptcy process.
Settlement Details
According to a June 3 filing, the IRS initially claimed FTX owed over $44 billion in taxes. However, this amount was later reduced to $24 billion. Under the settlement, the IRS will receive $200 million as a priority tax claim, paid within 60 days of the court’s approval of FTX’s reorganization plan. Additionally, the IRS will collect $685 million as a subordinated claim, which will be paid after customers and other creditors.
The agreement addresses all tax claims up until October 31, 2022. FTX stated that this settlement reduces litigation risk and provides greater certainty regarding creditor and customer recovery. The filing emphasized that the outcome of these proceedings would be uncertain due to the complex and novel tax law issues raised by the IRS claims.
Disputes Over Tax Liabilities
FTX does not deny owing taxes but disputes the amount and the specific reasons for the tax liability. The exchange argues that it should not be taxed on funds misappropriated by its former CEO, Sam Bankman-Fried. Additionally, FTX disagrees with the IRS’s calculations for employment taxes related to salaries paid to Bankman-Fried and other executives.
FTX also contends that it has valid deductions and losses that the IRS has wrongly disallowed due to a lack of proper documentation. Despite these arguments, the IRS was prepared to challenge FTX in court to impose significant tax liability.
Also Read: Sullivan & Cromwell Cleared of Wrongdoing in FTX Case
Proposed Plan for Creditor Repayment
On May 8, FTX proposed a new plan to repay creditors, aiming to fully reimburse all claims plus additional compensation. According to this plan, creditors holding claims below $50,000 will be eligible for a 118% recovery, which FTX anticipated would cover 98% of its creditors by number. Repayments will be based on the value of assets at the time of FTX’s collapse in November 2022.
This settlement marks a crucial step in resolving FTX’s bankruptcy issues and could pave the way for smoother proceedings as the company works to satisfy its creditors.
