FTX settled the Internal Revenue Service’s $24 billion claim for a fraction of what the agency said it owed, clearing the way for the crypto exchange to pay out significant customer recoveries.
The IRS will receive a $200 million claim in FTX’s bankruptcy to be paid within 60 days of when the company’s proposed restructuring plan goes into effect. The agency will also receive a $685 million lower priority claim, “payable on a subordinated basis to customers and other creditors” and “to the extent funds are available,” according to a Monday filing in the US Bankruptcy Court for the District of Delaware.
The settlement clears a significant hurdle in FTX’s bankruptcy, resolving what could have been protracted and unpredictable litigation between the fallen crypto exchange and its largest creditor. If a judge had upheld the IRS claim, it could have prevented customers from behind paid, FTX previously argued.
The settlement “provides much needed certainty as to the magnitude of the IRS Claims and allows these Chapter 11 Cases to move to swiftly toward resolution, thereby enabling the prompt distribution to the Debtors’ other creditors and customers,” FTX said in the Monday filing.
FTX has said it will pay back its customers completely.
FTX disputed the $24 billion claim, but acknowledged that it “could have significant tax liability to the IRS,” and that the agency’s claims raised novel legal questions.
The settlement will become effective after it is approved by a bankruptcy judge and its broader restructuring plan becomes effective.
FTX Trading Ltd. is represented by Sullivan & Cromwell LLP and Landis Rath & Cobb LLP.
The case is FTX Trading Ltd., Bankr. D. Del., No. 16558, 6/3/24.
