FTX Reaches Settlement With IRS Over $24 Billion Tax Claim

The IRS will receive a $200 million priority claim from FTX, and a $685 million lower priority claim payable to the extent that funds are available.

Bankrupt crypto exchange FTX has settled a dispute with the Internal Revenue Service (IRS) and will now pay a small fraction of the gargantuan tax claim the agency claimed it was owed.

According to court documents filed on Monday, the IRS will receive a priority claim of $200 million from FTX that will be paid within 60 days of the firm’s restructuring plan going into effect. The IRS will also be paid a $685 million junior priority claim on a subordinated basis to customers and other creditors to the extent that funds are available following the distribution plan.

The IRS initially claimed that the FTX owed $24 billion in taxes, which the bankruptcy estate contested last December. At the time, audit firm EY estimated that the most FTX had ever purported to earn from operating the exchange was $334 million, which would amount to a tax liability of $34.7 million. 

FTX has now agreed to pay a far lower amount to the IRX, clearing the way for the firm to go ahead with its plans to distribute recovered funds to creditors. Last month, the FTX bankruptcy estate said that 98% of creditors would receive at least 118% of their allowed claims in cash within 60 days of the reorganization plan taking effect.

The proposed plan came after the bankruptcy estate announced that it had gathered between $14.5 billion and $16 billion to fund creditor recoveries. Still, some creditors aren’t satisfied with the fact that claims will be paid out as per the prices in November 2022.

The recovery percentages are drawn from a fake baseline. It’s a false narrative,” said FTX creditor Arush Sehgal to Wired in May, adding that the plan was “an insult to creditors.”

FTX’s interim CEO John Ray III, all but conceded with the creditor grievances in a letter to Judge John Kaplan, overseeing the exchange’s bankruptcy proceedings.

“Mr Bankman-Fried’s victims will never be returned to the same economic position they would have been in today absent his colossal fraud,” said Ray.

“In other words, a victim who had bitcoin on FTX on November 11, 2022 will receive a distribution…400% lower than the value today.”