The beleaguered cryptocurrency exchange FTX, now in the throes of bankruptcy, is grappling with a significant challenge posed by a $24 billion tax claim from the United States Internal Revenue Service (IRS). This development could substantially delay the restitution process for the exchange's customers.
FTX, in a recent court filing, contended that the IRS's mammoth claim is baseless and would siphon off funds meant for victims of the company's downfall. The filing articulated a stark scenario, stating, "These cases present a zero-sum game. The only source of recovery for the IRS is by taking recoveries away from victims." This assertion underscores the company's position that satisfying the IRS's demands would directly impede compensating those affected by the platform's collapse.
The saga began in May 2023, when the IRS initiated efforts to collect unpaid taxes from both FTX Trading Ltd. and its affiliate, Alameda Research. Founded by Sam Bankman-Fried, also known as SBF, these entities have since found themselves at the center of a financial maelstrom. The initial tax arrears claim by the IRS amounted to a staggering $44 billion across various entities, later reduced to the current figure of $24 billion.
In its argument, FTX challenged the legitimacy of the IRS's claim, emphasizing the company's substantial losses and the improbability of having incurred tax liabilities anywhere near the proposed amount. The exchange's legal representation pointed out the incongruity of expecting a debt-ridden company to owe such an astronomical tax bill. They stated, "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."
FTX's filing in a Delaware court not only refuted the IRS's assertions but also highlighted the potential adverse impact on efforts to recoup funds. The exchange has been actively attempting to recover assets linked to its former CEO's transactions and activities to reimburse its users. The filing lamented, "It just makes no sense that a company that lost many billions of dollars would have a substantial tax liability, much less one for $24 billion."
This dispute arrives on the heels of another legal development involving FTX. In September, the company initiated legal action against Joseph Bankman and Barbara Fried, parents of SBF. The lawsuit accuses them of misusing their influence within FTX for personal gain. The objective of the lawsuit is to reclaim damages attributed to fraudulent transfers, breaches of fiduciary duty, unjust enrichment, and other misconducts. It also seeks punitive damages for alleged egregious conduct.
As FTX navigates this complex legal and financial landscape, the path to compensating its customers remains fraught with obstacles. The IRS's substantial claim adds another layer of complexity to the proceedings, potentially prolonging the timeline for customers awaiting reimbursement. This situation underscores the intricate interplay between regulatory bodies and bankrupt entities, particularly in the dynamic and often tumultuous realm of cryptocurrency exchanges.
