FTX has reached a $200 million settlement with the IRS on tax payments

Bankrupt crypto exchange FTX has reached a tentative settlement with its largest lender, the United States Internal Revenue Service (IRS).

The exchange and the IRS agreed to settle a $24 billion tax dispute, according to a June 3 filing. The IRS originally said FTX owed more than $44 billion in taxes, but the amount was later reduced. The judicial process is based on the court's FTX reorganization plan.

Under the deal, the IRS agrees to settle the $24-billion claim, accepting a $200 million advance tax claim to be paid within 60 days of the plan's approval. The tax authority will collect $685 million as subordinated claims, which will be paid after customers and other creditors.

The agreement covers all tax claims until October 31, 2022. According to FTX, settlement reduces the risk of litigation and increases the certainty of creditor and customer recovery. “Given some of the novel and complex tax law issues raised by the IRS claims, the outcome of these proceedings is uncertain.”

The record shows that FTX does not deny the taxes it owes but disagrees with the amount and specific reasons for tax liability. In particular, the exchange argued that former CEO Sam Bankman-Fried should not be taxed on embezzled funds. It also disagrees with the IRS's calculation of employment taxes related to the salaries paid to Bankman-Fried and other executives.

In addition, the IRS erroneously denied that the exchange had valid deductions and losses due to lack of proper documentation. However, the tax authority disagreed and prepared to fight FTX in court for higher tax payments:

“The IRS does not agree with the Debtors' arguments and has notified the Debtors that they may incur a higher tax liability by pursuing these and other concepts without settlement.”

FTX has proposed a new plan to pay off creditors, with plans to fully refund all claims and some additional compensation. Only creditors with claims under $50,000 qualify for the 118% recovery, which FTX estimates is “98% of FTX's creditors by number.” Payment will be based on the value of the assets at the time of the FTX collapse in November 2022.

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