By
Bhushan Akolkar
April 26th, 2024
FTX’s legal team noted in the filing that paying the $24 billion could impede the repayment of funds to the exchange victims.
Lawyers representing the bankrupt cryptocurrency exchange FTX have contested the United States Internal Revenue Service (IRS) claim of $24 billion in unpaid taxes. The attorneys insist that the IRS must substantiate its demands, urging the tax agency to provide evidence supporting its assertion.
In a recent filing with a Delaware bankruptcy court on November 10, the company refuted any liability to the IRS. The firm countered the tax agency’s assertion that the bankrupt exchange and its affiliates owe the government substantial unpaid taxes.
FTX Lawyers Object to IRS $24 Billion Tax Claim
The IRS initially sought payment of $44 billion in unpaid taxes in April, later amending the claim to $43 billion in September and ultimately settling on $24 billion in November. The tax agency maintained that its estimates were accurate. IRS said the figure covers income taxes, employment taxes, and penalties that the FTX and its affiliates owed from 2018 to 2022.
However, attorneys representing FTX in its ongoing bankruptcy proceedings have objected to the claim, labeling it “absurd and meritless.” The lawyers argued that the IRS’s figures lack a factual basis.
During its three-year existence, the legal team emphasized that FTX never distributed dividends or earnings and incurred significant losses. Therefore, the attorneys argued that the tax agency is not owed the substantial amount claimed.
FTX, in collaboration with the financial auditing firm EY, conducted an assessment revealing that the exchange incurred $11 billion in losses from 2020 to 2022 before its unfortunate collapse. The audit firm also uncovered that FTX’s maximum earnings from its crypto exchange operations were $334 million, implying a potential tax obligation of $34.7 million, in contrast to the $24 billion claimed by the IRS.
“The government is not looking for a windfall, only to determine the correct amount of the tax liabilities,” FTX lawyers stated in the filing.
$24 Billion IRS Demand Could Harm FTX Repayment of Users Funds
FTX’s legal team noted in the filing that paying the $24 billion could impede the repayment of funds to the exchange victims. The lawyers contended that the IRS’s reliance on its processes only delays distributions to legitimate victims.
“There is simply no basis to support the IRS’s meritless claims that the Debtors owe tax in an amount that is orders of magnitude greater than any income the Debtors ever earned and that would effectively prevent most of FTX’s creditors – themselves victims of fraud – from obtaining any meaningful recovery,” reads the court document.
In its court filing, FTX stated that it has been cooperating with the IRS since the beginning of the ongoing saga. Both the bankrupt exchange and the accounting firm EY have responded to over 2,300 information requests. The company claims it provided nearly all requested documents, with the remaining ones set to be submitted by January 15, 2024.
FTX has also called for the approval of a proposed schedule to avoid “indefinitely delaying distributions to victims”. The upcoming hearing on the FTX bankruptcy case, scheduled for Wednesday, December 13, will likely shed more light on the issue.
Meanwhile, it’s worth noting that FTX founder Sam Bankman-Fried (SBF) was recently convicted of defrauding FTX users and investors on November 2.