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IRS Files Claim against FTX & Affiliates, Seeks $44B in Unpaid Taxes

The US Department of Treasury and Internal Revenue Service (IRS) has filed a $44 billion claim against FTX and its subsidiaries. In the documents, dated April 27th and 28th, the IRS alleged that the embattled crypto exchange and its affiliated entities owe the revenue service $44 billion. The Washington, DC-based federal revenue service agency said the unpaid claims were due to FTX failing to report several transactions properly.

The single most significant IRS claim against FTX involved unpaid partnership and income taxes of $20.4 billion against Alameda Research. In addition, the federal tax collector also included separate $7.9 billion and $9.5 billion claims against the FTX sister firm. The IRS filed the claims under “administrative priority”, which enabled its assertion to take priority over unsecured creditors during bankruptcy proceedings.

Besides FTX and Alameda, other entities mentioned in the IRS 45-claim filings include FTX.US legal entity West Realm Shires and Blockfolio. In addition, the IRS claims that LedgerX and LedgerPrime parent company Ledger Holdings also owe a substantial amount of money.

The IRS’ filing comes after the federal government agency launched an investigation into FTX’s tax reporting practices. According to the agency, the bankrupt Bahamas-based crypto company failed to report more than $20 billion in activities between 2019 and 2022. The IRS further explained that these unreported crypto transactions led to the loss of billions of dollars in tax revenue. A spokesperson for the agency said that “federal law prevents the IRS from confirming or denying any correspondence [concerning] any taxpayer case”.

During a hearing in January, FTX’s bankruptcy lawyers disclosed the recovery of more than $5 billion in various assets. At the time, Landis Rath & Cobb attorney Adam Landis said:

“We have identified more than $5 billion of cash, liquid cryptocurrency, and liquid investment securities measured at petition date value. [It] just does not ascribe any value to holdings of dozens of illiquid cryptocurrency tokens, where our holdings are so large relative to the total supply that our positions cannot be sold without substantially affecting the market for the token.”

Landis further suggested that FTX squandered most of its customers’ funds and incurred tens of billions of dollars in liabilities. He explained that the amount the exchange owes remains unclear and will depend on the claims pool size and recovery efforts. At the time, Landis added:

“Every week, we are closer to completing the work necessary to estimate recoveries for a plan of reorganization.”

The attorney revealed that the bankruptcy team established a task force with the creditors’ committee to explore alternatives for reorganization. The bankruptcy team also worked with the Bahamas joint provisional liquidators (JPL).

FTX, founded in 2019 by crypto wunderkind Sam Bankman-Fried and businessman Gary Wang, declared bankruptcy last November. At its peak in July 2021, FTX was the second-largest of its kind in the world.

FTX’s collapse sent shockwaves across the entire crypto landscape and led to the arrests of key personnel, including Bankman-Fried. The disgraced former CEO currently awaits trial in the US in October.

IRS Files Claim against FTX & Affiliates, Seeks $44B in Unpaid Taxes

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