December 13, 2023

FTX Challenges IRS to Substantiate $24 Billion Tax Claim, Asserts Unreasonable Delay in User Fund Recovery

Initially claiming $44 billion in taxes owed, the IRS has since revised the amount downward, with FTX contesting the legitimacy of the entire tax claim.

In a recent filing to a Delaware bankruptcy court, lawyers representing FTX have called on the IRS to substantiate its claims and disclose the methodology used to calculate the alleged $24 billion in back taxes. This filing is the latest development in a protracted dispute between the IRS and FTX's bankruptcy estate regarding the amount owed to the government in unpaid taxes.

FTX vehemently denies owing anything to the IRS, countering the tax agency's demand of up to $24 billion, a figure more than three times the available estate funds intended to satisfy creditors. The cryptocurrency exchange, which operated for a brief three-year period, contends that it never distributed dividends or earned amounts anywhere close to what the IRS claims in taxes. The lawyers representing FTX highlight the significant financial losses incurred by the exchange during its existence.

According to the legal document, the lawyers argue:

"The only source of recovery for the IRS is by taking recoveries away from victims. As there is no basis to assert any tax claim against the debtors, the IRS’s reliance on its own processes only serves to delay distributions to those truly injured."

The IRS initially asserted a much higher sum, filing claims in April for approximately $44 billion, which were later revised to $43 billion in September. The latest figure of $24 billion was disclosed in November and pertains to income taxes, employment taxes, and penalties allegedly owed by FTX and its affiliated entities from 2018 to 2022. This figure remains provisional as the IRS continues its audit.

FTX dismisses the IRS claim as "absurd and meritless", emphasizing that it has responded to over 2,300 IRS information requests and provided nearly all requested documents, with the remaining documents to be submitted by January 15, 2024.

The IRS contends that its estimations are presumed correct, placing the burden of proof on FTX to demonstrate otherwise. FTX dismisses this argument as an "Alice in Wonderland" logic.

In its recent filing, FTX insists on the approval of a proposed schedule to prevent "indefinitely delaying distributions to victims". The next hearing on the FTX bankruptcy case is scheduled for today. FTX filed for bankruptcy in 2022, and its former CEO, Sam Bankman-Fried, was convicted of defrauding FTX users and investors on Nov. 2.

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