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FTX Tax Deal Slashes $24 Billion IRS Claim, But Creditors Remain Split Over Bankruptcy Plan

Published 7 days ago
James Morales
Published 7 days ago

Key Takeaways

  • FTX has reached a deal to settle its IRS tax bill.
  • The tax authority claims FTX owes $24 billion, but the settlement will see the firm pay just $200 million.
  • However, creditors must still vote to approve FTX’s bankruptcy plan.

FTX has negotiated to settle its tax bill with the Internal Revenue Service (IRS) for $200 million, a fraction of the $24 billion the agency says it is owed. 

The deal could resolve one of the final hurdles holding up the creditors’ repayment. But there are still those who object to the bankruptcy plan. 

FTX Settles IRS Tax Claim 

Following FTX’s bankruptcy filing in 2022, the IRS initially lodged a claim against the crypto exchange for $44 billion. However, it later adjusted this figure to $24 billion. 

The claim covered various tax obligations, including income and employment taxes, as well as penalties accrued between 2018 to 2022. However, FTX’s legal team contested these amounts, arguing that it never earned enough revenue to justify such massive liability.

Pushing  back  against the tax authority’s claims, the bankrupt estate argued that “the only source of recovery for the IRS is by taking recoveries away from victims.” 

The latest deal  forms part of a proposed Chapter 11 reorganization plan that will see FTX customers recover 118% of their losses, based on the dollar value of crypto assets held on the exchange when it went under.

By avoiding a drawn-out legal battle with the IRS, the deal could expedite creditor repayments. But the bankruptcy plan still faces strong resistance from certain quarters. 

Objections to FTX Bankruptcy Plan

On Wednesday, June 5, the FTX Customer Ad-Hoc Committee (CAHC) filed a formal objection to the current Chapter 11 plan. 

Representing a group of customers who are pushing for FTX to repay creditors in crypto rather than fiat, CACH argued that the proposed plan “will inflict additional hardships on customers through forced taxation that could be avoided by making an ‘in-kind’ distribution,” and has called for customers to reject the bankruptcy plan

The same group is also behind a class action lawsuit against FTX’s law firm Sullivan & Cromwell (S&C), the law firm managing the case.

However, not all creditors are in agreement.

Creditors’ Split on Ideal Resolution

Although there are certainly tax advantages to in-like repayments, changing course now would complicate matters just as the end is finally in sight. 

Given the crypto market gains that have occurred since 2022, most FTX customers would presumably prefer to recover their assets. But most of these have already been sold

The FTX bankruptcy plan will be approved by the court if it is accepted by more than half of the creditors that turn out to vote, and if those creditors represent at least two-thirds of the total sum owed to the voters. 

The CAHC voting block doesn’t hold a majority. Nonetheless, it does include those FTX customers who are most fiercely opposed to the bankruptcy plan as it stands. And a poor turnout could increase its weight.

However, taking into account the IRS deal, accepting the offer on the table will lead to the speediest resolution. 

Unlike Mt. Gox, there is no stash on Bitcoin steadily accruing value if the case drags out for years. With most of the assets already liquidated, creditors must weigh the benefit of an additional 10%-20% on the value of their claims against the cost of waiting.

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