By: CCN, James Morales
Compiled by: Felix, PANews
Key Takeaways
FTX has reached an agreement to settle its IRS tax debt
Tax authorities claim FTX owes $24 billion, but settlement requires only $200 million up front
However, creditors still have to vote to approve FTX's bankruptcy reorganization plan.
Earlier news, FTX has reached a settlement with the U.S. Internal Revenue Service (IRS) to resolve its $24 billion tax claim. According to the settlement plan, the IRS will receive a priority claim of $200 million within 60 days of approval. Another $685 million in secondary priority claims will be paid after customers are fully reimbursed.
The deal would resolve one of the final hurdles to paying back creditors, but opposition to the bankruptcy plan remains.
FTX settles IRS tax claim
The IRS initially filed a claim of $44 billion against the cryptocurrency exchange after FTX filed for bankruptcy in 2022. However, the company later adjusted that figure to $24 billion.
The claim covers various tax obligations, including income and employment taxes, as well as penalties accrued between 2018 and 2022. However, FTX's legal team disputed these amounts, saying it never earned enough revenue to cover such a large liability.
In response to the tax agency’s claims, the estate argued that “the IRS’s only source of recovery is from the victims.”
The latest transaction is part of a proposed Chapter 11 reorganization plan. On May 7, FTX's bankruptcy administrator announced a reorganization plan in which creditors will receive full cash repayment. Under the plan, creditors with claims of less than $50,000 will be eligible for 118% compensation (based on the dollar value of the crypto assets held by creditors at the time of FTX's bankruptcy) within 60 days of court approval. Other non-government creditors will also receive full compensation and interest compensation of up to 9%.
The settlement could avoid a protracted legal battle with the IRS and speed up payments to creditors, but the bankruptcy plan still faces strong resistance in some quarters.
Opposition to FTX bankruptcy plan
On June 5, the FTX Customer Ad Hoc Committee (CAHC, led by Sunil Kavuri) formally raised objections to the current restructuring plan.
Behind CACH is a group of creditors who pushed FTX to repay in cryptocurrency rather than fiat currency. CACH argued that the proposed plan did not pass the best interest test, contained clauses that were not in the interests of creditors, and ignored property rights issues. Creditors said that cash repayments would result in customers having to pay taxes on the cash received, and suggested using in-kind repayments to avoid tax issues. They also called on other customers to reject the bankruptcy plan.
The Commission also filed a class action lawsuit against Sullivan & Cromwell (S&C), the law firm that handled the case for FTX.
However, not all creditors agree with this claim.
Creditors divided over solution
While the repayment method proposed by the committee does have tax advantages, changing it now, when the debt is about to come due, would complicate matters.
Most FTX customers would probably prefer to withdraw their assets, given the crypto market’s recovery since 2022. But most of them have already been sold.
The court will approve the plan if more than half of the creditors voting agree and those creditors' claims account for more than two-thirds of all debts.
While the CAHC does not have a majority, it does include those FTX customers who are most opposed, which could increase its voting weight if overall voting participation is low.
However, given the IRS deal, accepting the existing repayment options will be the quickest solution.
Unlike the Mt. Gox case, if the FTX case drags on for years, the Bitcoin reserves will not steadily increase in value. Since most assets have been liquidated, creditors must weigh the benefits of a 10%-20% increase in the value of their claims against the costs of waiting.
Related reading: SBF was sentenced to 25 years in prison: Will he appeal? What will be the outcome of the appeal?
