FTX battles IRS in court over $24 billion tax dispute

abdelaziz Fathi

The conflict between the U.S. Internal Revenue Service (IRS) and the bankrupt crypto firm FTX Trading Ltd. has intensified, with FTX challenging the IRS’s demand for $24 billion in unpaid taxes.

FTX argued in a recent court filing that unless a judge dismisses this claim, the hefty tax demand could deplete funds meant for the victims of the firm’s fraud.

Scheduled for a court hearing on Wednesday, the two parties are set to debate the legitimacy of the IRS’s claim and the appropriate procedures to assess the owed amount. FTX is pushing for a swift process to estimate the claim, while the IRS argues that its ongoing audit makes such an estimation premature.

In the filing to a Delaware bankruptcy court, FTX’s lawyers insist that the IRS should substantiate its claim and clarify how it calculated the alleged back taxes from 2018 to 2022. The IRS initially claimed around $44 billion in April, later amending it to $43 billion in September and then reducing it to $24 billion in November. This sum includes income taxes, employment taxes, and penalties purportedly owed by FTX and its affiliates.

FTX’s attorneys contested the IRS’s claims, stating that during its three-year existence, FTX neither distributed dividends nor earnings that could justify the $24 billion tax demand. They highlighted that FTX, in fact, incurred substantial losses. The company termed the IRS’s claim as “absurd and meritless,” noting their compliance with over 2,300 IRS information requests and provision of almost all requested documents.

The IRS claims that its tax estimations are presumed correct, placing the onus on FTX to prove otherwise—a stance FTX criticized as an “Alice in Wonderland argument.” The crypto firm insists on a timeline for resolving the tax dispute, arguing that any delay in this matter could indefinitely postpone compensation to the victims of its bankruptcy.

FTX filed for bankruptcy in November, following the conviction of its former CEO, Sam Bankman-Fried, for defrauding FTX users and investors on November 2.

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