The bankrupt cryptocurrency exchange FTX is facing a significant challenge with a proposed $24 billion tax bill from the United States Internal Revenue Service (IRS), which the exchange claims could severely impact the potential recovery for its victims.
FTX and its sister firm, Alameda Research, have been under the IRS’s scrutiny for tax arrears since May. Initially, the IRS had put forward claims totaling $44 billion across 45 separate cases against FTX and its subsidiaries on May 10, but this figure was later reduced to $24 billion.
In a filing with the U.S. Bankruptcy Court for the District of Delaware on December 10, FTX contested the IRS’s claims, labeling them as baseless and expressing concern that they would diminish the funds available for reimbursing affected FTX users. The firm stated, “That would effectively prevent most of FTX’s creditors—themselves victims of fraud—from obtaining any meaningful recovery.”
FTX’s legal team argued that there is no substantial basis for the IRS’s claims, which they believe are significantly higher than any income the Debtors ever earned. They criticized the IRS for relying on its processes, suggesting that this approach only delays compensation for those who have been genuinely harmed.
The exchange also contended that the $24 billion claim is not subject to estimation and lacks legal merit, describing it as an “Alice in Wonderland argument” with no legal support.
The IRS is still in the midst of completing its audit, a process that could extend for another eight months, as indicated in the court filing. The legitimacy of the IRS’s claim is expected to be debated in court on December 12.
In the meantime, FTX’s administrators have reportedly recovered approximately $7 billion in assets, including $3.4 billion in cryptocurrencies.
Sam Bankman-Fried, the former CEO of FTX, was convicted on all seven fraud-related charges in November. He is currently detained at the Brooklyn Metropolitan Detention Center, awaiting a sentencing verdict scheduled for March 28, 2024.
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