FTX Challenges IRS’s $24 Billion Tax Claim in Bankruptcy Court

In an ongoing legal clash with the Internal Revenue Service (IRS), FTX, the bankrupt cryptocurrency exchange, contests the tax authority’s substantial demand for back taxes. This dispute, unfolding in a Delaware bankruptcy court, intensifies the already lengthy disagreement between FTX and the IRS, holding crucial implications for the company's creditors and the wider crypto market.

Challenging the IRS’s Tax Claim

FTX's legal representatives, in a recent filing, question the IRS’s assertion that the exchange owes a staggering $24 billion in back taxes. Lawyers argue that this amount significantly exceeds FTX’s financial capacity during its three operational years. They contend that FTX, having never distributed dividends or earned amounts remotely close to justifying the IRS’s claim, faced substantial financial losses. The legal team deems the IRS’s demand "absurd and meritless," emphasizing its potential impact on diminishing recoveries for the bankruptcy's victims.

A Fluctuating Tax Bill and FTX’s Response

The IRS's claim against FTX has undergone notable fluctuations. Initially filed at around $44 billion in April, the amount was later adjusted to $43 billion and then to the current $24 billion. This claim covers income taxes, employment taxes, and penalties from 2018 to 2022, subject to potential changes as the IRS audit continues. FTX, along with accounting firm EY, has cooperated extensively, responding to over 2,300 information requests and providing most requested documents. Additional documents are anticipated by January 15, 2024. The IRS maintains the presumptive correctness of its tax estimations, placing the burden of proof on FTX to demonstrate otherwise.

Upcoming Court Hearing

FTX's filing underscores the urgency of establishing a resolution schedule to prevent further delays in compensating the bankruptcy's victims. The next court hearing on the FTX bankruptcy case is scheduled for Wednesday, December 13.

The prominence of the FTX case grew after its November bankruptcy filing last year and the subsequent conviction of former CEO Sam Bankman-Fried for defrauding users and investors. The outcome of the legal battle with the IRS holds pivotal significance in determining the distribution of FTX's remaining assets.

The ongoing legal battle raises concerns about the fairness of the IRS's claim, potentially impacting the recovery for bankruptcy victims. The fluctuating figures and FTX's assertion of financial losses contribute to the perception that the IRS's demand is excessive. The outcome of the case remains uncertain, adding further complexity to the already convoluted situation surrounding FTX's bankruptcy.