FTX, once a major player in the crypto trading world, may be on the verge of getting a significant tax break. The company has reached a proposed settlement with the IRS that would reduce its tax liability to just $885 million. This settlement is a significant reduction from the IRS’s initial claim of over $44 billion, which was later amended to $24 billion.
The bankruptcy of FTX in November 2022 sent shockwaves through the crypto community, with accusations of financial impropriety leading to a collapse of the exchange. CEO Sam Bankman-Fried stepped down on the same day the company filed for bankruptcy, and he was later found guilty of fraud, conspiracy, and money laundering. Following the bankruptcy filing, over 100,000 creditors claimed they were owed between $10-$50 billion.
FTX filed for Chapter 11 bankruptcy, allowing the company to reorganize and continue operations while paying back debt. In May 2024, the company announced plans to pay customers 100% of their holdings back with interest, providing some hope to investors impacted by the bankruptcy. The settlement with the IRS represents a key step in resolving the legal issues surrounding FTX’s financial troubles.
The IRS initially filed a significant tax claim against FTX, which included allegations of misappropriation income related to Bankman-Fried’s actions, employment tax liability, and disallowed deductions and losses. FTX disputed some of these claims but acknowledged the potential for significant tax liability. The settlement would resolve these disputes and prevent further litigation expenses for both parties.
As part of the settlement, FTX has agreed to pay $885 million to the IRS, with $200 million treated as a priority claim and payable within 60 days. The remaining $685 million would be considered a lower-priority claim and payable to the extent of available funds. The settlement would be a full and final satisfaction of the IRS claims for the income tax years 2018-2022 and employment taxes for the same period.
A hearing on the matter is scheduled for June 25, 2024, before Judge John T. Dorsey. The settlement represents a significant reduction in the IRS’s original claims against FTX and could pave the way for the company to move forward and address other financial obligations. The resolution of the tax issues is a critical step in the company’s efforts to emerge from bankruptcy and rebuild its reputation in the crypto trading industry.
