FTX a cryptocurrency exchange filing for bankruptcy, reached a provisional agreement with the IRS to settle a $24 billion tax dispute.
The cryptocurrency exchange FTX, which is now in the process of filing for bankruptcy, has reached a provisional arrangement with the Internal Revenue Service (IRS) of the United States. The exchange and the IRS reached an agreement to settle a $24 billion tax dispute in a filing on June 3.
FTX Reaches Tax Settlement with IRS
The Internal Revenue Service (IRS) initially accused FTX of owing more than $44 billion in taxes, but later reduced the amount. The legal agreement is contingent on the court’s acceptance of the reorganization plan proposed by FTX. In accordance with the terms of the settlement, the Internal Revenue Service would consent to the resolution of its $24 billion claim and would receive $200 million in priority tax claim payments within sixty days of the plan’s acceptance.
Furthermore, the tax authority will have the ability to recoup around 685 million dollars as a secondary claim, following the payment of customers and other creditors. By the end of October 2022, the agreement will cover all tax claims. The settlement, as stated by FTX, minimizes the danger of litigation and raises the level of certainty for the recovery of debts owed by creditors and customers.
The outcome of these processes would be unknown due to the fact that IRS claims have brought up a number of fresh and complicated questions of tax law. The submission shows that while FTX acknowledges its tax obligations, it disagrees with the amount of taxes owed and the specific justifications for them.
To be more specific, the exchange contends that it should not be subject to taxation on money that was stolen by its previous chief executive officer, Sam Bankman-Fried. In addition, it is in disagreement with the estimates that the Internal Revenue Service has made on employment taxes due to salaries paid to Bankman-Fried and other executives.
Additionally, the exchange argues that the Internal Revenue Service is incorrectly denying it legitimate deductions and losses due to a lack of appropriate documentation. Despite this, the tax authority disagreed with FTX and was willing to take legal action against the company in order to obtain a substantial tax payment.
“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 offered a revised plan to repay creditors, with the intention of fully compensating all claims and providing some additional compensation. Only creditors who possess claims in an allowable amount that is less than $50,000 will be entitled to an 118% recovery, which they believed would be “98% of the creditors of FTX by number.” The value of the assets held by FTX at the time of its collapse in November 2022 will be used to determine the amount of repayment.