Bankrupt cryptocurrency exchange FTX has reached a settlement with the United States Internal Revenue Service (IRS).
If the settlement is approved by a judge, FTX would pay the IRS $200 million within 60 days and an additional $685 million as a subordinated claim at a later date.
A Tentative Agreement
According to a filing made on June 3, FTX and the IRS had agreed to settle their $24 billion tax dispute. The IRS had claimed that FTX owed $44 billion in taxes. However, this amount was later reduced. Under the settlement plan, the IRS would receive $200 million in priority tax. This would be paid within 60 days of the plan’s approval. FTX would also have to pay an additional $685 million as a subordinated claim, which would be paid after customers and other creditors receive their dues. The court must approve the settlement plan, but if approved, it would mark a major dispute resolution for FTX.
The settlement between FTX and the IRS covers all tax claims until October 31, 2022. FTX stated that the settlement helps reduce litigation risk and increases certainty regarding creditor and customer recovery.
“The outcome of these proceedings would be uncertain given certain novel and complex issues of tax law raised by the IRS Claims.”
FTX CEO John J. Ray III, who is overseeing the restructuring of the fallen exchange, stated that the settlement is a crucial step in resolving the bankruptcy.
“Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers.”
Details Of The Filing
FTX’s reorganization plan aims to repay FTX customers and creditors as early as possible, with over 90% of assets returned by mid-2024. The filing states that while FTX does not deny owing taxes, it disagrees with the amount demanded and specific reasons for its tax liability. The exchange has argued that it should not be taxed on the funds misappropriated by former CEO Sam Bankman-Fried. It also disagreed with the IRS on its calculations for employment taxes related to salaries paid out to Bankman-Fried and other FTX executives.
It also argued that there are valid deductions and losses that the IRS is wrongly disallowing. However, the IRS disagreed with FTX on its claims.
“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.”
A Brutal Fallout
FTX was one of the most prominent players in the crypto space until its spectacular collapse. The platform filed for Chapter 11 bankruptcy in November 2022 after facing an unprecedented liquidity crisis triggered by a surge of customer withdrawals and financial mismanagement. At its peak, the platform was the third-largest cryptocurrency platform.
The exchange’s collapse impacted numerous stakeholders and triggered intense regulatory scrutiny of companies in the crypto space. Former CEO and founder Sam Bankman-Fried was eventually found guilty of fraud, conspiracy, and money laundering.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
