Imploded cryptocurrency exchange FTX owes a lot of people a lot of money – but has convinced America's tax collectors at the IRS to give it a massive discount on its $24 billion tax bill.

In a [1]filing [PDF] this week to a Delaware bankruptcy court, FTX argued it should pay just $200 million of the $24,000,000,000 Uncle Sam reckons it owes.

The filing also reveals the bust biz will set aside $685 million to pay back customers who deposited cryptocurrency funds into the exchange, and other creditors – once its tax matters are over, natch. FTX, now managed by liquidators, has continued to maintain it will be able to repay its creditors in full.

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The [3]collapsed exchange is said to owe those crypto customers and other creditors [4]$11 billion , and reckons it can cover that by raising more than $16 billion from selling its assets, such as its stake in companies including AI model maker [5]Anthropic as well as cryptocurrencies recovered from FTX's baffling network of wallets and accounts.

Taxing times

FTX said it "vigorously dispute[s]" the IRS's $24 billion figure, which it said includes things the collapsed biz itself isn't liable for, such as "misappropriation income" stemming from former CEO Sam Bankman-Fried stealing and spending customer funds, a crime that led to the business's downfall. Bankman-Fried was jailed in March for 25 years.

The exchange's latest management said the US tax collector "does not agree" with its arguments for a substantially lower bill, "and has informed [FTX] that absent a settlement it would pursue these and other theories to impose significant tax liability."

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But impose it won't - a letter included in the court filings indicate the tax agency is fine with FTX paying less than four percent of its tax bill. The IRS declined to comment, citing ongoing litigation.

Argue your way out of a tax bill the John Ray way

The man leading the resolution of FTX’s affairs, John Ray III, knows a mess when he sees one - he was placed in charge of Enron after it collapsed in 2001. So when Ray says the situation he inherited at FTX after it declared bankruptcy was " [8]unprecedented ," he ought to be taken seriously.

His approach in this case starts with the corporation admitting liability.

"The debtors do not dispute that, given the complexity of these cases and the state of the debtors' books and records prior to the commencement of these Chapter 11 cases, the debtors could have significant tax liability to the IRS," FTX said in its motion to the court.

[9]FTX inner circle helped itself to $3.2B, liquidators say

[10]SBF on trial: The Python code that allegedly let Alameda hedge fund spend people's FTX deposits

[11]SBF likely off the hook for misplaced FTX funds after cops bust SIM swap ring

[12]FTX crypto-crook Sam Bankman-Fried gets 25 years in prison

Next comes a call to just sort things out without sending good money after bad by enumerating all of FTX’s liabilities.

"Given the complexity of the disputes between the debtors and the IRS and the associated cost of resolving those disputes," FTX argued, "the debtors have determined that, in its totality, entry into the settlement is in the best interests of the debtors and their estates."

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That argument is backed by a warning that arguing about every dollar would actually costs creditors money.

FTX has [14]previously argued that litigating tax plans with the IRS would also lead to delays in returning customers' deposits, and its latest court filings again argued it's willing to contest the IRS’s claims.

In other words, this whole case is such a mess that everyone's going to lose out if we litigate this in court, so let's just skip that and you can take less than four percent of our calculated tax bill.

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If the US government decides it's getting the raw end of the deal it has until June 17 to file an objection, and a hearing date in the matter is scheduled for June 25.

FTX didn't respond to questions for this story. ®

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[1] https://regmedia.co.uk/2024/06/05/ftx-tax-break-motion.pdf

[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/personaltech&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2ZmE0Zawe9IT7lpu-sIE-KAAAAJg&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0

[3] https://www.theregister.com/2022/11/15/ftx_collapse_cryptocurrency/

[4] https://www.bloomberg.com/news/articles/2024-05-15/ftx-bankruptcy-will-pay-customers-over-100-but-they-missed-crypto-rally

[5] https://finance.yahoo.com/news/ftx-sell-majority-stake-anthropic-170200763.html

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[8] https://www.theregister.com/2022/11/18/ftx_disarray_declared_unprecedented_by/

[9] https://www.theregister.com/2023/03/16/ftx_sbf_liquidator_claims/

[10] https://www.theregister.com/2023/10/10/ftx_python_code/

[11] https://www.theregister.com/2024/02/05/sbf_off_the_hook_for/

[12] https://www.theregister.com/2024/03/28/ftx_sbf_sentenced_25_years/

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[14] https://www.theblock.co/post/267102/ftx-says-irs-demand-for-24-billion-in-unpaid-taxes-is-delaying-recovery-of-user-funds

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[16] https://whitepapers.theregister.com/