IRS Targets FTX-affiliated Entities with $44 Billion Tax Claims: Impact on Crypto Taxation

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The US Internal Revenue Service (IRS) has recently filed staggering tax claims worth $44 billion against the bankrupt crypto exchange, FTX, and its affiliated entities. The claims comprise 45 total cases against the FTX companies, all related to unpaid taxes. Interestingly, the IRS is prioritizing its claims over creditors in the bankruptcy case, which has caused concern among FTX creditors.

Two of the largest claims, totaling $28.3 billion, are aimed at FTX sister firm Alameda Research, a Hong Kong-based company. Furthermore, two other claims, reaching up to $9.5 billion, have been lodged against Alameda Research Holdings Inc. The IRS has filed these claims under the “administrative priority” provision, which allows the claims to surpass those of unsecured creditors during bankruptcy proceedings.

The taxation-by-citizenship system that the US practices requires its citizens to pay taxes on their worldwide income despite their place of residence or days spent in the US. Key executives and employees of Alameda Research, such as Sam Bankman-Fried and Caroline Ellison, are American citizens, which makes the situation particularly relevant. In partnership entities like Alameda Research, taxes are not levied at the partnership level. Instead, they pass through to the partners and become subject to taxation on the individual level.

Claims in bankruptcy cases are usually inflated, as noted by Twitter user @MrPurple_DJ. He explains that one reason for the extraordinarily high claims is that “sometimes claims get filed for the same claim against each individual debtor entity (in this case there are 130 of them) but claims can’t be settled 2x-130x for the same underlying claim.” Filing is procedurally done to ensure a claim isn’t disallowed for being filed against the incorrect entity.

The founder of FTX, Sam Bankman-Fried, has requested a New York federal judge to dismiss most criminal charges brought against him by federal prosecutors. The attorneys of Bankman-Fried argue that several accusations against him were dramatic, turning civil and regulatory issues into federal crimes.

Meanwhile, the efforts to relaunch FTX have been progressing as the platform has recovered over $7.3 billion in cash and liquid crypto assets. The movement to revive FTX has even sparked interest from Tribe Capital, a venture firm that seeks to lead a $250 million fundraising campaign for the new platform.

The significant IRS tax claims against FTX and its affiliated entities highlight the complexity of cryptocurrency taxation and regulations in the US. Additionally, the unique situation of FTX emphasizes the importance of transparency and compliance within the crypto industry when it comes to tax liabilities.

Source: Cryptonews

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