Bankrupt cryptocurrency exchange FTX has reached a preliminary agreement with its largest creditor,…
Bankrupt cryptocurrency exchange FTX has reached a preliminary settlement with its largest creditor, the United States Internal Revenue Service (IRS).
According to a June 3 filing, the exchange and the IRS agreed to settle a $24 billion tax dispute. The IRS initially claimed FTX owed more than $44 billion in taxes, but that amount was later reduced. The settlement is contingent on court approval of FTX’s reorganization plan.
Under the terms of the settlement, the IRS will agree to resolve its $24 billion claim and receive $200 million in priority tax debt paid within 60 days of approval of the plan. The IRS will also collect $685 million in a secondary claim, which will be paid after customers and other creditors.
The agreement covers all tax claims through October 31, 2022. According to FTX, the settlement reduces litigation risk and increases certainty regarding recovery for creditors and customers. “The outcome of these proceedings will be uncertain given some of the novel and complex tax law issues raised by the IRS claims.”
The filing states that FTX does not deny the taxes owed but disagrees with the amount and specific reasons for the tax owed. Specifically, the exchange says it should not be taxed on money embezzled by its former CEO, Sam Bankman-Fried. He also disagrees with the IRS’s calculations of employment taxes related to salaries paid to Bankman-Fried and other executives.
Additionally, the exchange claims to have valid deductions and losses that the IRS wrongly denies due to lack of proper documentation. However, the IRS disagreed and was prepared to fight FTX in court over large taxes:
“The IRS does not agree with the debtors’ arguments and has informed the debtors that, absent a settlement, it will pursue these and other theories to impose significant tax liabilities.”
FTX proposed a new creditor repayment plan on May 8, aiming to pay all claims in full as well as additional compensation. Only creditors with an eligible amount below $50,000 will be eligible for a 118% recovery, which FTX says represents “98% of FTX’s creditors by number.” Repayments will be based on the value of assets at the time of FTX’s collapse in November 2022.
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