FTX Faces Over $40 Billion in IRS Tax Claims

In a significant development in the FTX Group’s protracted bankruptcy proceedings, the Internal Revenue Service (IRS) has filed claims against the default entity that far exceed previous estimates, casting doubt on the possibility of the company reopening for business.

Unpaid Taxes Exceed $40 Billion

To contextualize this development, as recently as January, it was estimated that the 50 largest creditors of FTX were owed a cumulative total of approximately $3 billion. Although the total amount owed to all creditors exceeded $8 billion, this figure was considered manageable for a company that still held valuable investments in its portfolio.

However, this outlook shifted dramatically when the IRS recently filed 45 claims against various entities within the FTX Group, totaling approximately $44 billion.

Employment Tax Disputes

The complete list of claims has been published on the website of restructuring firm Kroll. The largest single claim amounts to $20.4 billion, followed by another exceeding $7 billion and two others valued at over $2 billion each. The remaining 41 claims contribute an additional $13 billion to the total.

While the detailed breakdown of tax filings is not available for most of these claims, a leaked document detailing the largest claim has circulated online, indicating that the issue centers on unpaid employer-side employment taxes.

Following an investigation, the IRS reclassified FTX Group personnel from independent contractors to employees, resulting in a substantial tax liability.

The total amount now owed by the FTX Group to the U.S. government significantly outweighs the debts owed to businesses and individual investors. This presents a major challenge because, under U.S. legal precedent, claims from unsecured creditors can only be satisfied after the U.S. government is paid in full.

“The issue with this substantial tax bill is not merely that it adds another massive creditor to Alameda (which would reduce FTX’s pro rata share of Alameda’s estate).

The critical issue is that this tax claim holds priority over FTX’s own claim. Under the U.S. Bankruptcy Code, the federal government has priority over unsecured creditors, meaning this massive $20 billion tax bill must be settled before any funds can flow from Alameda to FTX International.”

These claims have not yet been discussed in court, at least not publicly. It remains to be seen how IRS attorneys will pursue these claims given the high-profile nature of the bankruptcy case.