FTX Seeks Substantial Reduction in Tax Debt Amid Ongoing Dispute with IRS

FTX Seeks Substantial Reduction in Tax Debt Amid Ongoing Dispute with IRS

FTX Trading Ltd, the legal entity behind the collapsed crypto exchange FTX, is seeking a substantial reduction in its tax liabilities owed to the United States Internal Revenue Service (IRS).

This latest development adds another chapter to the ongoing saga between the troubled exchange and the nation’s tax authority. FTX aims to settle with the IRS by proposing to pay a $200 million priority tax claim and a $685 million subordinated claim, as outlined in a legal filing dated June 3.

The FTX Debtors, who are overseeing the company’s affairs during its bankruptcy proceedings, contest the IRS’s calculations, particularly in regards to funds allegedly misappropriated by Sam Bankman-Fried and other tax liabilities.

“The Debtors strongly dispute the IRS Claims on several crucial grounds, including disputes over income tax liability related to ‘misappropriation income’ resulting from Sam Bankman-Fried’s alleged misappropriation of FTX customer funds, employment tax liability concerning purported compensation paid to Mr. Bankman-Fried and other former principals of the Debtors, and the proposed disallowance of significant deductions and losses due to insufficient substantiation,” the filing states.

While the Debtors hold firm to their stance, the IRS remains at odds with their arguments and intends to pursue substantial tax claims if a settlement cannot be reached. The deadline for objections in the case is June 17, with a hearing scheduled for June 25, 2024.

Previously, the IRS had initially asserted that FTX owed $44 billion in taxes, which was later reduced to $24 billion. FTX has contended that satisfying the IRS’s $24 billion tax demand would further delay the return of funds to customers, as reported by The Block.

A priority tax claim, such as taxes, takes precedence over other debts and must be settled before other obligations, while a subordinated claim is only addressed after higher-priority obligations have been met.