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The Internal Revenue Service (IRS) claims FTX owes it $24 billion in unpaid taxes, which may delay payouts further, as the only source of funds would take away money from FTX’s victims.
Victims of the collapse of the crypto exchange FTX face yet another setback. In a recent court filing, lawyers for FTX asked the IRS to substantiate its claim for $24 billion in unpaid taxes. FTX’s legal team further requested the IRS to show how it estimated the back taxes due.
“Alice in Wonderland” Argument
Lawyers for bankrupt cryptocurrency exchange FTX submitted a filing to a Delaware bankruptcy court, in which it requested the IRS substantiate its outlandish tax claim. According to the exchange’s legal team, the source of funds would mean taking away cash from the FTX victims. The filing said unless a judge rejects the IRS’s $24 billion demand, victims of the FTX fraud would receive no meaningful recovery.
The filing said:
“This Alice in Wonderland argument has no support in the law.”
FTX claims that it owes the IRS nothing and says the IRS’s demand is over three times the amount the estate has to repay its creditors. Lawyers argued FTX, in its short three-year lifespan, never distributed dividends or earnings and “never earned anything anywhere near amounts that could support the IRS claims for $24 billion in taxes.” Adding, “In fact, the Debtors incurred billions of dollars in losses.”
The filing details;
“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.”
FTX’s legal team added:
“The only source of recovery for the IRS is by taking recoveries away from victims. 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.”
IRS Initially Demanded $44 Billion
According to reports by The Block, the IRS initially said the exchange owed it approximately $44 billion but amended the amount to $43 billion and lowered it to the current $24 billion demand. The revenue agency says the $24 billion is related to income taxes, employment taxes, and penalties owed by the exchange and its affiliates from 2018 to 2022.
FTX creditors received a glimmer of hope in October when it was reported that they might see over 90% of their assets returned by mid-2024. FTX’s former CEO and co-founder, Sam Bankman-Fried, was recently declared guilty on seven criminal charges of wire fraud, securities fraud, and money laundering conspiracy.
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