IRS’s $24 billion tax bill threatens recovery for FTX victims

FTX, previously the dominant player in the cryptocurrency exchange market, now faces a huge obstacle in its bankruptcy filing process. The Internal Revenue Service (IRS) issued FTX a massive tax bill worth $24 billion. This new development has the potential to significantly change the chances of recovery for those affected by the exchange collapse.

Moreover, FTX’s creditors and victims, who were already suffering from the exchange’s collapse, now face additional difficulties. FTX’s legal team challenged the Internal Revenue Service’s (IRS) $24 billion in unfair and exaggerated tax claims. The Federal Trade Commission (FTX) claims that if the tax bill goes into effect, funds that should be distributed to victims of exchange collapses will dry up. The exchange’s lawyers stress the validity of their argument by pointing out that FTX has suffered significant losses and is highly unlikely to have suffered such a large tax burden in the first place.

At the heart of the legal dispute between FTX and the IRS is the legality of the tax claims. Initially, the Internal Revenue Service (IRS) asked for $44 billion, but eventually settled for $24 billion. FTX, which is currently in the process of liquidating its assets, argues that the recovery offer proposed by the Internal Revenue Service (IRS) would be detrimental to FTX victims because it would divert cash from victims’ compensation. This issue may make FTX’s efforts to pay affected consumers more difficult and result in delays in the compensation process.

These situations are examples of digital asset companies coming under heightened scrutiny from U.S. authorities. After FTX’s high-profile failure in November 2022, the Internal Revenue Service (IRS) and the Department of Justice increased their interest in cryptocurrency businesses. The shift in how U.S. regulators treat the cryptocurrency industry can be seen in the case of FTX, which was characterized by allegations of mismanagement and exploitation of consumer money.

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