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HomeDigital AssetsFTX reaches tentative $24 billion tax settlement with IRS
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FTX reaches tentative $24 billion tax settlement with IRS

This follows an initial claim by the IRS that FTX owed more than $44 billion in taxes, later reduced during negotiations.

According to a court filing, the settlement is contingent upon the approval of FTX’s reorganization plan by the court. Under the terms of the agreement, the IRS will resolve its $24 billion claim in exchange for $200 million to be paid as a priority tax claim within 60 days of the plan’s approval.

A priority tax claim must be paid before other debts, whereas a subordinated claim is addressed only after higher-priority obligations are fulfilled.

Additionally, the IRS will receive $685 million as a subordinated claim, which will be paid after other creditors and customers are compensated.

The settlement addresses all tax claims up to October 31, 2022. FTX stated that this resolution would reduce litigation risk and provide greater certainty regarding creditor and customer recoveries. “The outcome of these proceedings would be uncertain given certain novel and complex issues of tax law raised by the IRS Claims,” the filing noted.

While FTX acknowledges it owes taxes, the company disputes the amount and the basis for the tax liability. Specifically, FTX argues that it should not be taxed on funds misappropriated by its former CEO, Sam Bankman-Fried. The exchange also contests the IRS’s calculations for employment taxes related to salaries paid to Bankman-Fried and other executives.

FTX further argues that it has valid deductions and losses that the IRS is incorrectly disallowing due to a lack of proper documentation. The IRS, however, disagrees and was prepared to pursue massive tax liabilities in court if a settlement was not reached.

In a previous filing, FTX proposed a new plan to repay creditors and fully reimburse all claims plus some additional compensation. Creditors with claims under $50,000 are eligible for a 118% recovery, which FTX estimates includes “98% of the creditors of FTX by number.” Repayments will be based on the value of assets at the time of FTX’s collapse in November 2022.

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