
- Defunct exchange FTX and the United States Internal Revenue Service (IRS) are locked in a dispute over an unpaid tax claim.
- FTX and the IRS have reached a settlement agreement.
- The exchangeโs creditors are still awaiting repayment.
Fallen crypto exchange FTX is still picking up its pieces, burdened by outstanding debts to creditors and regulatory obligations. In October 2023, the U.S Internal Revenue Service slapped the exchange and its affiliate, Alameda Research, with a hefty $44 billion bill, citing accumulated unpaid taxes spanning several months.
Following a prolonged struggle and a substantial reduction in the amount owed, FTX’s financial troubles are easing even further
FTX to settle with the IRS
According to a June 3, 2024 filing, the United States Bankruptcy Court for the District of Delaware has approved the settlement request between FTX Trading Ltd and the IRS, aiming to conclude the months-long dispute.
Sponsored
The approved settlement significantly lowers FTX’s total payable amount to $885 million, a substantial decrease from the IRS’s initial $44 billion claim and its later reduction to $24 billion. This reduction followed FTX’s argument against its responsibility for funds misappropriated by its founder, Sam Bankman-Fried, asserting that such a high amount would hinder its ongoing creditor settlement process.
โThe Debtors vigorously dispute the IRS Claims in many crucial respects including, among other things, the income tax liability for so-called ‘misappropriation income’ as a result of Sam Bankman-Friedโs theft of FTX customer funds, the employment tax liability for purported compensation paid to Mr. Bankman-Fried and other former principals of the Debtors,โ stated the filing.
While the firm acknowledged its tax obligations, FTX contended that the Internal Revenue Service’s calculation and cited reasons for the liability were significantly erroneous.
The new $885 million bill is payable in two parts: a $200 million priority tax claim, which must be settled within 60 days of the effective date of approval, and an additional $685 million subordinated claim, payable after compensating other creditors and customers.
FTXโs Creditor Settlement Process
The 2022 financial collapse of FTX resulted in significant losses for many users, leaving the exchange with an $11 billion debt owed to approximately two million customers and other creditors.
In recent months, efforts to compensate these customers have gained momentum, with the exchange announcing plans to reimburse users for their losses plus interest. So far, FTX has amassed up to $16.3 billion for distribution, primarily acquired from asset sell-offs and investment returns.
FTX is expected to commence distributions within 60 days of securing approval for its settlement plan, and according to the exchangeโs current CEO, John Ray III, creditors with allowed claims below $50,000 would be eligible for 118% compensation
On the Flipside
- FTX founder Sam Bankman Fried was recently sentenced to 25 years in prison post conviction on several counts of fraud.
- A wave of phishing emails and scams has emerged recently targeting FTX claimants.
- FTX creditors will receive payments based on asset rates on November 22, 2022, time of its collapse.
Why This Matters
FTXโs resolution of its tax debt with the Internal Revenue Service (IRS) substantially alleviates its financial strain, and could potentially expedite its repayment commitment to creditors.
Read more about FTXโs investment returns and asset sell-offs:
FTX Cashes Out of Anthropic, Rakes in $800M Profit
Worldcoin regulatory woes have continued to expand, read more on the latest:
Worldcoin Halts Operations In Spain Amid Regulatory Probe