At The Crosshairs Of The US IRS
The bankrupt crypto exchange faces a $24 billion tax bill imposition by the US Internal Revenue Service (IRS), jeopardizing the prospect of a significant recovery for its affected creditors. This massive tax levy was initially set at $44 billion across 45 individual claims against FTX and its affiliate Alameda Research.
Since May, the IRS has aggressively pursued outstanding tax obligations owed by FTX and its related entities, adding to the exchange’s financial woes. However, the revised $24 billion demand casts gloom over any anticipated respite for the embattled exchange and its stakeholders.
This massive tax liability poses a formidable challenge and diverts resources and attention away from potential avenues of recovery for those affected by the FTX fallout in November 2022. Also, the significant reduction from the initial claim does little to alleviate concerns, as the revised amount remains a substantial financial burden.
Meanwhile, the looming threat of this tax bill adds to the turmoil surrounding FTX, complicating the company’s bankruptcy proceedings. The dire financial implications impede the prospects of a meaningful recovery and cast doubt on whether the exchange and its associated entities can restart business operations in the future.
If the proposed tax bill is implemented, FTX victims will unlikely receive compensation. The tax bill will deplete any funds intended for FTX victims.
FTX Challenges Tax Regulator
Meanwhile, FTX has contested the tax body’s claims in a new filing at the United States Bankruptcy Court for the District of Delaware. The firm dismissed them as unfounded and harmful to restitution efforts for affected FTX users.
FTX’s legal counsel refuted the IRS’s claims, stating they lacked any factual foundation. According to the FTX legal team, there is no basis for the IRS’s claims that the debtors owe a higher tax than any income the debtors ever earned.
Furthermore, FTX questioned the $24 billion claim, alleging that it was not based on a reliable estimation method and, more importantly, lacked substantive legal grounds.
IRS’s Prolonged Audit
Meanwhile, the IRS has affirmed that it will continue its audit for at least another eight months. Thus, the unresolved dispute over the claim’s legitimacy sets the stage for a pivotal court showdown between FTX and the US government.
Despite the legal turmoil, FTX’s administrators have made progress in asset recovery, securing approximately $7 billion, including $3.4 billion in crypto assets. This achievement represents a significant effort to salvage assets for the benefit of those affected by the exchange’s abrupt stop of operations.
However, FTX’s issues are exacerbated by legal problems and the recent conviction of its former CEO, Sam Bankman-Fried. Recall that the US regulators charged Bankman-Fried with seven counts of fraud, and he was recently found guilty.
He is currently being held in the Brooklyn Metropolitan Detention Center. Meanwhile, the unfolding events paint a complex and challenging landscape for FTX, entangled in legal battles, asset recovery efforts, and the severe implications of the CEO’s conviction.
