FTX to IRS: $24B Tax Claim ‘Meritless’ and Harms Victims

The ongoing FTX bankruptcy case took a contentious turn this week as lawyers for the failed crypto exchange fired back against what they deemed a “meritless” $24 billion tax claim filed by the Internal Revenue Service (IRS).

Keypoints

• The IRS has filed a $24 billion claim against the FTX bankruptcy estate for alleged unpaid taxes
• FTX lawyers argue the claim is completely unsupported and there is no basis for the IRS to assert taxes owed anywhere near that amount
• FTX says paying the IRS claim would prevent victims from getting any meaningful recovery from the bankruptcy
• The IRS claim relies on its own audit process which could delay distributions to victims by 8 months or more
• FTX urges moving forward with the bankruptcy on schedule, arguing the IRS claim should be resolved expeditiously to avoid harming victims

In a court filing Sunday, FTX attorneys argued the IRS has provided no factual basis to support assertions that FTX owes up to $24 billion in unpaid taxes. FTX says any attempt by the tax agency to suck up bankruptcy funds would directly prevent victims of the FTX collapse from recovering any meaningful assets.

“The only source of recovery for the IRS is by taking recoveries away from victims,” FTX lawyers wrote. “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 previously claimed FTX owed as much as $43 billion in taxes before lowering its assertion to $24 billion. But FTX maintains it has never come close to earning amounts needed to incur taxes anywhere near that scale.

In reality, FTX lost billions of dollars leading up to its implosion, lawyers said. Paying the IRS bill would consume virtually all assets clawed back for victims to this point.

FTX called the claim “Alice in Wonderland” logic devoid of legal grounds. However, disputing the allegations threatens to drag out bankruptcy proceedings another 8 months as IRS audits continue. FTX implored moving ahead with confirming reorganization plans in February to start reimbursements for victims.

So far administrators have recovered about $7 billion for FTX, including $3.4 billion worth of cryptocurrencies. Former CEO Sam Bankman-Fried faces sentencing in March 2024 after being convicted on all counts of fraud earlier this year.

The back-and-forth with the IRS inserts major uncertainty around timelines and payouts for FTX users who lost funds. But FTX remains adamant the tax authority has no right to access victim recoveries based on current evidence.

Ongoing legal wrangling may determine whether the IRS claim holds legitimacy or ultimately gets tossed to clear the way for making victims whole.