Lawyers for FTX said in a new filing with a Delaware bankruptcy court on Sunday that the IRS should substantiate its claims against FTX and explain how it estimated the tax it says it owes. The move is the latest development in a months-long dispute between the IRS and the FTX bankruptcy estate over how much tax bankrupt FTX and its affiliates owe the government.
While FTX claims it owes the IRS nothing, the agency wants up to $24 billion, more than three times the amount the bankruptcy estate is currently using to compensate creditors.
FTX has never distributed dividends or earnings in its short three-year life and "has never earned anything close to the $24 billion the IRS is seeking in taxes," the lawyers wrote. Instead, FTX lost significant amounts of money, they added.
"With no basis for any tax claims against the debtors, the IRS's reliance on its own procedures will only delay the release of compensation to those who were truly harmed," the attorneys argued in the filing.
From US$44 billion to US$24 billion
The IRS initially said it owed a much larger amount, filing an initial claim of about $44 billion in April. In September, the IRS revised that amount to $43 billion. In November, that number fell to $24 billion.
The IRS said the $24 billion in arrears relates to income tax, employment taxes and penalties owed by FTX and its affiliated entities from 2018 to 2022. This number is not final yet, as the IRS continues to audit.
FTX called the claim "ridiculous and baseless." Both FTX and Ernst & Young responded to more than 2,300 requests for information from the IRS and provided nearly all documents requested by the IRS, except for some documents that will be provided by January 15, 2024, the filing said.
The IRS said its estimate was presumed to be correct and FTX had the burden of proving that its estimate was wrong. FTX called the IRS's statement "Alice in Wonderland."
In yesterday's filing, FTX insisted that its proposed timeline must be approved to avoid "indefinite delays in distribution to victims." The next hearing in the FTX bankruptcy case is scheduled for Wednesday, December 13.
FTX filed for bankruptcy last November. The company’s former CEO, Sam Bankman-Fried, was found guilty on November 2 of defrauding FTX users and investors.