FTX has reached a settlement with its largest creditor, the Internal Revenue Service (IRS). This agreement resolves a major $24 billion tax dispute that has been looming over the stock exchange's restructuring process. Initially, the IRS claimed that FTX owed more than $44 billion in taxes, but that amount was significantly reduced as part of the settlement.
Effects and certainty
Under the terms of the settlement, FTX will pay the tax agency the $200 million priority tax claim within 60 days of the court's approval of the exchange's reorganization plan, as described in the filing made yesterday (Monday). In addition, the IRS will collect $685 million, which will be paid after compensating creditors and other clients.
The settlement provides much-needed certainty to FTX's creditors and customers regarding the recovery process. With the tax dispute resolved, FTX can now focus on implementing the reorganization plan and distributing assets to stakeholders. The agreement also mitigates the risk of protracted litigation, which could have further complicated the exchange's bankruptcy proceedings.
While FTX acknowledged its tax liability, it disagreed with the IRS as to the amount and specific reasons for the tax liability. The exchange argued that it should not be held liable for funds embezzled by its former CEO, Sam Bankman-Fried, and objected to the IRS's calculations of employment taxes related to executive salaries, Cointelegraph reported.
Tax claims against FTX
Additionally, FTX has asserted that it has valid deductions and losses that the IRS is not unfairly disallowing due to documentation issues. Last year, the US Treasury and the IRS filed claims totaling $44 billion against FTX and its affiliates. Finance Magnates reported that this tax claim highlighted the complexities and consequences of FTX's bankruptcy.
These claims targeted several FTX entities, including Bahamian-registered FTX Trading Alameda Research, West Realm Shires, Ledger Holdings, Blockfolio, and others. The largest tax claims were directed at Alameda Research LLC, with a staggering $20.4 billion in individual claims and $7.9 billion and additional claims against Alameda Research Holdings Inc. Totaling $9.5 billion.
The $20.4 billion claim relates to partnership and payroll taxes, which are designated as priority over other unsecured creditors. Despite operating outside the United States, key FTX executives, including Bankman-Fried and CEO Carolyn Ellison, were responsible for worldwide income taxes.
This article was written by Jared Kirroy at www.financemagnates.com.