The US Internal Revenue Service (IRS) has filed claims worth $44 billion against bankrupt cryptocurrency exchange FTX and its subsidiaries. The body highlighted the importance of complying with tax regulations in the cryptocurrency industry. As cryptocurrencies continue to gain mainstream acceptance, governments around the world are likely to increase their oversight of the industry, including taxation.
IRS details claims against FTX and its subsidiaries
FTX is a cryptocurrency exchange founded in 2019 by Sam Bankman-Fried and Gary Wang. It is headquartered in Antigua and Barbuda and has offices in Hong Kong and the US. The exchange offers a wide range of cryptocurrency trading options, including futures, options, and leveraged tokens.
The IRS’s claims against FTX and its subsidiaries include $20.4 billion in partnership and payroll taxes assessed against Alameda Research LLC, a sister company of FTX. The IRS also filed claims of $7.9 billion and $7.5 billion against Alameda Research LLC and Alameda Research Holdings, respectively.
An additional $2.0 billion claim has been made against Alameda Research Holdings. These claims have been filed under “administrative priority,” allowing the IRS’s claims to take precedence over those of unsecured creditors during bankruptcy proceedings.
Although Alameda Research was headquartered in Hong Kong, it’s founders and key personnel, including Sam Bankman-Fried and Caroline Ellison, are US nationals. Unlike most other countries, the US taxes its citizens based on their citizenship rather than their place of residence or time spent in the US per year.
This means that US nationals are liable for taxes on their worldwide income, regardless of where they reside. For partnership entities, taxes are not paid at the partnership level but are passed through their partners and taxed at the individual level.
The implication of IRS’ move against FTX
This IRS’s move against FTX comes amid a broader crackdown on cryptocurrency tax evasion in the US. Last year, the IRS added a question about cryptocurrency to its tax forms, requiring taxpayers to disclose any cryptocurrency transactions. The agency has also issued guidance on the tax treatment of cryptocurrency, emphasizing that it is subject to the same tax laws as traditional assets.
In April, FTX announced that it had recovered $7.3 billion in assets and may consider relaunching the exchange next year. However, this announcement was made before the IRS claims, and at the time, FTX’s liabilities still outweighed its assets by an estimated $8.7 billion.
The cryptocurrency industry is not immune to taxation, and firms operating in the space must comply with relevant tax laws to avoid costly penalties and legal action. The IRS’s claims against FTX and its subsidiaries highlight the importance of understanding and complying with tax regulations, especially as governments around the world increase their oversight of the industry.
The cryptocurrency industry must take proactive measures to ensure compliance with applicable tax laws to avoid similar consequences. As the industry continues to grow and evolve, it is essential to stay up to date on the latest developments in cryptocurrency taxation to avoid falling afoul of the law.
