The bankrupt cryptocurrency exchange FTX has tentatively agreed to a $200 million settlement with the Internal Revenue Service (IRS).
This agreement, subject to court approval, aims to resolve a major tax dispute that has complicated FTX’s bankruptcy process.
The settlement addresses a contentious $24 billion tax claim by the IRS, which initially asserted FTX owed over $44 billion in taxes. After negotiations, the amount was reduced significantly.
Under the terms of the agreement, the IRS will receive $200 million in priority tax claims, payable within 60 days of the court approving FTX’s reorganization plan.
Additionally, the IRS will collect $685 million as a subordinated claim, to be paid after other creditors and customers are compensated.
This settlement includes all tax claims up to October 31, 2022. FTX contends that the settlement minimizes litigation risks and provides greater certainty for creditor and customer recoveries.
The exchange maintains that while it acknowledges some tax liability, it disputes the IRS’s calculations, particularly concerning funds misappropriated by former CEO Sam Bankman-Fried and employment taxes for executives.
FTX has argued for valid deductions and losses that the IRS has disallowed due to inadequate documentation.
Despite these disagreements, the IRS was prepared to pursue substantial tax payments through court action if no settlement was reached.
On May 8, FTX proposed a new repayment plan for creditors, aiming to fully reimburse claims and offer additional compensation. Under this plan, creditors with claims under $50,000 could receive a 118% recovery, covering 98% of FTX’s creditors by number.
Repayments will be based on the value of assets at the time of FTX’s collapse in November 2022.
