Bankrupt crypto exchange FTX has recorded a major achievement in its ongoing bankruptcy proceedings. This follows after it reached an agreement to settle a massive tax dispute with its largest creditor, the United States Internal Revenue Service (IRS). The agreement, filed on June 3rd, brings a resolution to an earlier contested $24 billion tax bill for a significantly reduced sum of $885 million.
Recall that the IRS initially claimed that FTX owed it more than $44 billion in taxes. However, the amount was later reduced to $24 billion, while FTX still contested the amount and reasoning behind the tax liability. The issues, according to the tax agency, bordered on disagreements over taxes related to funds allegedly misappropriated by former CEO Sam Bankman-Fried and the IRS’ calculations for employee taxes.
FTX, on the other hand, argued for the validity of certain deductions and losses that the IRS allegedly disallowed due to missing documentation. In order to avoid a prolonged legal battle and a much larger tax bill, both parties decided to reach a compromise.
IRS Agreement Reduces Uncertainty and Risk for FTX Crypto Exchange’s Reorganization
Per the agreement, the IRS is now set to receive $200 million as a priority claim within 60 days of FTX’s reorganization plan being approved by the court. In addition to that, the tax authority will also collect $685 million as a subordinated claim, paid after customer and other creditor debts are settled.
By implication, this agreement removes any uncertainty surrounding the tax issue, which could have, in one way or another, hindered FTX from repaying its creditors as promptly as possible.
The settlement allows FTX to move forward with the proposed reorganization plan, which it unveiled last month. This robust plan aims not only to help creditors get all their money back but with a focus on maximizing payouts for smaller claims.
Nearly 98% of FTX creditors, whose claims are under $50,000, are expected to receive a 118% recovery. That’s because repayments will be based on the value of FTX’s assets at the time it collapsed in November 2022.
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