IRS Deals Devastating Blow to FTX With $24 Billion Tax Claim, Crypto Exchange Pushes Back
According to a November 30 filing by FTX debtors, the IRS tax claims of $24 billion filed in early November are “completely unsubstantiated” and FTX has now requested that the claims be dismissed by the bankruptcy court.
Sam Bankman-Fried’s FTX was hit with a major setback in its bankruptcy proceedings when the IRS filed the staggering tax claims last month, presenting a potentially insurmountable obstacle for the exchange as it attempts to recover funds and reimburse customers.
FTX Calls IRS Tax Claims “Unsubstantiated” and Motion Filed for Dismissal
FTX asserted that the IRS has failed to provide any factual or legal rationale to justify tax claims of such an immense magnitude, especially given FTX’s financial circumstances.
The filing stated that despite ongoing discussions and repeated requests, the IRS has not substantiated the basis for maintaining tax claims that vastly exceed FTX’s estimated earnings and debts. FTX argued that the IRS claims, which currently total 47 separate claims against 31 FTX debtors, were speculative and threatened to impede customer reimbursement efforts indefinitely.
The scale of the IRS tax claims against FTX, among the largest ever levied by the agency, has prompted urgent legal action by the exchange. FTX contends that the unexpected tax claims of approximately $24 billion could critically impact its objective of restoring funds to customers and creditors affected by FTX’s shocking collapse in November 2022.
According to analysts, IRS tax claims have the potential to completely derail FTX’s bankruptcy proceedings if not dismissed or dramatically reduced. Some experts view the claims as a potentially lethal blow to hopes of rehabilitating the exchange and question whether FTX can continue operations at all given the scale of the IRS action.
FTX Complied With Over 1,100 IRS Information Requests
In its motion to dismiss the IRS claims, FTX revealed it has worked diligently to comply with IRS requests for information, fulfilling over 1,100 requests from IRS audit teams. FTX stated it has supplied extensive documentation to the IRS to provide transparency and determine the accuracy of the tax claims.
Despite FTX’s repeated efforts to obtain details supporting the IRS calculations, the agency has reportedly failed to provide a factual foundation for the extraordinary tax liability cited. FTX maintained that the absence of substantiation from the IRS indicated the claims were erroneous and inflated.
The IRS action against FTX adds further uncertainty to the already reeling crypto industry, which has yet to fully recover following FTX’s collapse. The exchange’s bankruptcy proceedings had planned to restore the shaken confidence of crypto investors, but the enormous tax claims from the IRS present yet another complication in FTX’s attempted rehabilitation.
As FTX continues its uphill legal battle in the aftermath of its catastrophic collapse, the exchange is gearing up to contest the IRS claims which it views as unfounded and excessive. The outcome of FTX’s motion to dismiss the tax claims worth approximately $24 billion could determine whether the exchange can proceed with its bankruptcy reorganization or will be permanently derailed by its troubles with US tax authorities.