FTX Warns: IRS Tax Bill Poses Threat To Creditors’ Prospects Of Meaningful Redemption

The bankrupt cryptocurrency exchange FTX has expressed concern that the proposed $24 billion tax bill by the United States Internal Revenue Service (IRS) is poised to absorb any potential “meaningful recovery” earmarked for victims associated with FTX.

Since May, the United States tax authority has actively pursued outstanding tax payments from the crypto exchange FTX and its affiliated entity, Alameda Research. On May 10, the IRS asserted $44 billion in 45 separate claims against FTX and its subsidiaries. However, the IRS has recently revised its claim to $24 billion.

Nevertheless, in a filing dated Dec 10 submitted to the U.S. Bankruptcy Court for the District of Delaware, FTX contended that the assertions made by the IRS were baseless. FTX further emphasized that these claims would lack merit and adversely affect the funds designated for compensating FTX users impacted.

Snippet from FTX Trading’s response to the U.S. government’s $24 billion tax claim. Source: Kroll

“This would essentially bar the majority of FTX’s creditors, who are themselves victims of fraud, from securing any substantial recovery,” the Firm said.

FTX’s legal representatives asserted, “There is no foundation to justify the IRS’s groundless assertions that the Debtors owe taxes in an amount significantly surpassing any income the Debtors have ever generated.”

They further commented, “The IRS’s dependence on its internal procedures only contributes to postponing distributions to those genuinely affected.”

FTX Reclaims $7 Billion Amidst Legal Turmoil As IRS Audit Drags On

FTX contended that the $24 billion claim was not open to assessment and lacked legal justification.

They stated, “This argument, reminiscent of Alice in Wonderland, lacks any legal foundation.”

Nevertheless, the IRS is currently finalizing its audit, and this process is anticipated to extend for an additional eight months, as indicated in the filing.

There is an understanding that FTX and the U.S. government will engage in a legal dispute to ascertain the claim’s legitimacy in court on Dec 12.

During the interim period, administrators of FTX’s have successfully recovered around $7 billion in assets. This sum encompasses $3.4 billion in cryptocurrencies. Their efforts have resulted in the successful retrieval of these substantial funds.

In November, Sam Bankman-Fried, the ex-CEO, was convicted on all seven fraud-related charges. He is incarcerated at the Brooklyn Metropolitan Detention Center due to his convictions.

The sentencing verdict for these charges is scheduled for Mar 28, 2024. Bankman-Fried awaits the outcome of the legal process about his fraudulent activities.

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The author’s views are for reference only and shall not constitute any investment advice. Please ensure you fully understand and assess the products and associated risks before purchasing.

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