FTX Reaches Agreement to Settle $24B IRS Tax Claims For $200M
The settlement with the IRS aims to prioritize customer repayments and expedite bankruptcy resolution. It is now subject to the court's approval, but it could pave the way to swift reimbursements of the creditors.
FTX, the bankrupt cryptocurrency exchange, has secured a tentative settlement with the Internal Revenue Service (IRS) over a significant $24 billion tax claim. This move is part of FTX’s ongoing bankruptcy process and aims to prioritize repayments to its customers.
According to the terms outlined in a June 3 court filing, the IRS initially claimed FTX owed over $44 billion in taxes, a figure later adjusted to $24 billion. The settlement stipulates that the IRS will receive $200 million as a priority claim, to be paid within 60 days following the court’s approval of FTX’s reorganization plan. Additionally, the IRS will be granted a $685 million subordinated claim, which will be addressed only after satisfying other creditors and customers.
The agreement, covering all tax claims up to October 31, 2022, aims to mitigate litigation risks and enhance certainty regarding the recovery for creditors and customers. FTX stressed that this settlement avoids a prolonged legal dispute that could have hindered customer repayments.
In its filing, FTX clarifies that while it acknowledges owing taxes, it disputes both the amount and the specific grounds for the tax liability. The exchange argues it shouldn’t be taxed on funds misappropriated by its former CEO, Sam Bankman-Fried, and disputes the IRS’s employment tax calculations related to salaries paid to Bankman-Fried and other executives. FTX also claims valid deductions and losses that the IRS has improperly disallowed due to insufficient documentation.
The IRS, however, disagreed with FTX’s stance and was ready to pursue significant tax liability in court. This settlement provides a definite path forward, allowing FTX to focus on repaying its customers and speeding up the resolution of its bankruptcy case.
FTX proposed a new repayment plan on May 8, which aims to fully reimburse all claims with some additional compensation. Under this plan, creditors with claims below $50,000—estimated to include 98% of FTX’s creditors by number—will be eligible for a 118% recovery. These repayments will be based on the value of assets at the time of FTX’s collapse in November 2022.
In conclusion, the settlement with the IRS marks a pivotal step in FTX’s bankruptcy proceedings. It removes a major potential barrier and facilitates a quicker resolution, enabling the prompt distribution of funds to creditors and customers.
