FTX, a once-prominent crypto trading exchange, is potentially getting a tax break as part of a proposed settlement with the IRS. If approved, the company may only have to pay $885 million to resolve tax claims that originally amounted to more than $24 billion. This settlement comes after a tumultuous period for FTX, which saw its valuations plummet and ultimately file for bankruptcy in November 2022.
The collapse of FTX was accompanied by accusations of financial impropriety, leading to a run on the exchange as customers sought to withdraw their assets. The former CEO, Sam Bankman-Fried, was later arrested and found guilty of fraud, conspiracy, and money laundering. The bankruptcy was filed under Chapter 11 of the U.S. Bankruptcy Code, allowing the company to reorganize and repay debts while continuing operations. Creditors impacted by the bankruptcy were given the opportunity to be heard in court.
In May 2024, FTX announced plans to repay customers 100% of their holdings with interest, providing some relief to investors. The IRS initially filed a tax claim against FTX for over $24 billion, alleging various tax liabilities related to mismanagement and misappropriation of funds. However, a settlement was reached that significantly reduced the IRS’s claims to $885 million, with $200 million marked as a priority claim and the remaining $685 million as a lower-priority claim.
According to court documents, the settlement would prevent FTX from seeking a refund for any amount classified as a priority claim. This agreement is considered a full and final satisfaction of the IRS claims for the income tax years 2018-2022 and employment taxes for the same period. The settlement aims to resolve disputes without the need for protracted litigation, a common practice in Chapter 11 bankruptcies.
A hearing on the settlement is scheduled for June 25, 2024, before Judge John T. Dorsey. FTX’s new CEO, John J. Ray III, described the mismanagement at the firm as the worst failure of corporate controls he has seen in his career. The settlement with the IRS represents a significant reduction in the tax liabilities faced by FTX, potentially allowing the company to move forward and focus on rebuilding its reputation and operations in the crypto world.
Overall, the proposed settlement between FTX and the IRS marks a crucial step in resolving the financial challenges faced by the once-prominent crypto exchange. If approved, the reduced tax liability of $885 million would provide FTX with a much-needed financial relief and pave the way for its recovery from the fallout of the bankruptcy. The outcome of the upcoming hearing will determine the final resolution of the tax claims and shape the future trajectory of FTX in the volatile and competitive crypto market.
