FTX has reached a tentative agreement with the IRS to settle a massive $24-billion tax dispute. This settlement is part of a broader reorganization plan that FTX is negotiating in bankruptcy court. The IRS had initially claimed FTX owed over $44 billion in taxes, but this amount was substantially reduced in the settlement agreement.
The agreement was detailed in a filing on June 3. The settlement is contingent upon the court’s approval of FTX’s reorganization plan, with specific payments to the IRS scheduled within 60 days of plan approval.
The proceedings and negotiations are taking place within the United States bankruptcy court system, where FTX is undergoing reorganization following its financial collapse.
Under the terms of the proposed settlement, the IRS would accept $200 million as a priority tax claim to be paid shortly after the reorganization plan’s approval. Additionally, the IRS would receive $685 million as a subordinated claim, which will be paid after other creditors and customers’ claims are settled. This arrangement covers all tax liabilities up until October 31, 2022. The settlement aims to minimize litigation risks and provide more certainty regarding the recovery processes for creditors and customers.
The settlement is a critical component of FTX’s efforts to address the legal and financial complications arising from its bankruptcy. The dispute primarily revolves around disagreements over the amount of taxes owed and the basis for these taxes, particularly concerning funds misappropriated by FTX’s former CEO, Sam Bankman-Fried, and other executive-related expenses. FTX argues for deductions and losses which the IRS initially refused due to insufficient documentation. This agreement, if approved, would significantly reduce potential legal battles and facilitate a smoother reorganization process. Additionally, FTX’s proposed plan to repay creditors, including a 118% recovery for certain small creditors, illustrates the company’s strategy to resolve claims and possibly emerge from bankruptcy.
