While FTX struggles to recover from its bankruptcy and long list of lawsuits, the failed crypto exchange has been slammed with another major setback as the IRS has issued a staggering $24 billion tax bill.
FTX Challenges IRS Tax Liability Claims
The International Revenue Service (IRS) for the United States has recently delivered an unexpected $24 billion tax bill to the insolvent crypto exchange, FTX. The IRS’s imposing tax claims come at a time when FTX is battling with the aftermath of bankruptcy and working stringently to recover its assets to restore customer funds.
“On April 27 and 28, 2023, the IRS filed initial proofs of claim containing estimates nominally totaling approximately $44 billion without any discussion or preview with the Debtors,” the filing stated.
It added:
On November 2, 2023, the IRS further amended certain of its claims to reduce the amounts claimed for the 2022 and 2023 tax years. While those reductions were welcome, as of the date of this Motion, the completely unsubstantiated estimated IRS Claims against the Debtors still total approximately $24 billion.
FTX is presently gearing up for a legal battle with the IRS and has filed a motion to the United States Bankruptcy Court to dismiss all tax claims made by the IRS. According to the filing, the IRS’s substantial tax bill “bears no relation to reality,” particularly because the IRS has refused to provide a rational explanation for its tax claims.
FTX debtors have also stated that the tax bill would significantly impede the efforts they have made in attempting to reimburse customers for their lost funds. At present, the IRS’s $24 billion tax bill is one of the largest ever issued by the agency. Moreover, the total bill is estimated to be grossly more than FTX’s earnings and debts to customers.
“The claims asserted by the IRS threaten to halt the Debtors’ progress and any distribution to customers and other creditors indefinitely on the basis of estimates the IRS has not explained after many months of discussion and increasingly urgent requests,” the filing stated.
FTX debtors have made a formal request to the Delaware bankruptcy court to establish a schedule and framework for estimating the IRS’s claims. The exchange’s goal is to secure the dismissal of the tax claims with a valuation set at $0.00 fees or an alternative amount determined during trial.
FTT Token recovers amid exchange's troubles | Source: FTTUSDT on Tradingview.com
FTX Debtors Claim Compliance To IRS Information Requests
In its recent motion to dismiss the IRS tax claims, FTX debtors revealed it has continually worked with the IRS audit teams to supply information on approximately 1,100 requests by the IRS. The objective of the crypto exchange’s compliance was to provide clarity and ascertain the accuracy of the IRS’s $24 billion tax claims.
“Debtors have repeatedly sought specificity from the IRS on the factual and legal bases that might support the facially bloated IRS Claims, but little progress has been made to date. The IRS has not proffered any rational basis for believing that such Debtors could have additional tax liability for prepetition periods, let alone for maintaining nearly $24 billion in estimated claims,” the filing stated.
The filing also disclosed that the IRS presently has over 47 pending claims against 31 FTX debtors. These claims cite tax liability estimations due to unfiled returns. However, the FTX filing has maintained that the IRS claims are speculative and unliquidated, emphasizing the volume of information the debtors have consistently provided to the IRS. Just as regulatory battles are shaping other industries, like the fast-evolving Delaware sports betting sector, the outcome of FTX’s dispute with the IRS could set important precedents for how crypto-related tax claims are handled moving forward.
