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- The validity of the IRS’ $24 billion tax claim against FTX will be decided at a January hearing
- Bankruptcy judge Judge John Dorsey scheduled the hearing to resolve the matter which would impact creditor payouts
- The issue mirrors Coinlab’s pursuit of $16 billion from MtGox creditors
A hearing will take place in January to decide the validity of the Inland Revenue Service’s (IRS) claim that bankrupt exchange FTX owes a staggering $24 billion in tax. The wrangling over the matter has threatened to derail the FTX bankruptcy case and take money from creditors, leading to the bankruptcy judge overseeing the case, Judge John Dorsey, to schedule a hearing next month to settle the matter. The situation is reminiscent of the efforts by Bitcoin company Coinlab to take $16 billion out of the MtGox creditor pot, money it says it is owed and which it has sued to try and obtain.
“Alice in Wonderland” Claim
The IRS shocked observers in May when it claimed it was owed a total of $44 billion in various forms of taxation from FTX, a figure that has been revised down to $24 billion for the purposes of this individual matter. FTX called the figure an “Alice in Wonderland argument” and added that there was “simply no basis to support the IRS’s meritless claims that the Debtors owe tax in an amount that is orders of magnitude greater than any income the Debtors ever earned and that would effectively prevent most of FTX’s creditors – themselves victims of fraud – from obtaining any meaningful recovery.”
Amid warnings that the claim would directly impact creditors, Judge Dorsey has ordered a hearing over the IRS’ claim in January, however, he has cautioned against overly optimistic expectations, stating that the debtors may owe varying amounts of taxes, ranging from a small sum to tens of millions of dollars. In doing so he emphasized the need for a swift and accurate resolution in the complex bankruptcy proceedings, aiming to conclude the case efficiently while conserving resources.
The situation is reminiscent of the actions of Coinlab, a Bitcoin company that signed a deal to make MtGox a legal entity in the US. However, when the deal broke down, Coinlab claimed $75 million from MtGox in its post-bankruptcy claim filing, a claim it upped to $16 billion shortly afterward, citing years of lost revenue.
Coinlab’s claim has led to a lawsuit and funds being ringfenced against a partial victory, forcing creditors to accept a reduced payout or wait for the lawsuit to play out.