FTX, a cryptocurrency exchange that filed for bankruptcy, and the United States Internal Revenue Service (IRS) have reached a crucial settlement agreement regarding a substantial unpaid tax claim. This agreement marks a significant milestone in the prolonged dispute between the two parties. Despite this progress, FTX's creditors remain in limbo, eagerly awaiting repayment.

The collapsed crypto exchange is still grappling with the aftermath of its financial downfall, burdened by outstanding debts to creditors and regulatory obligations. In October 2023, the IRS issued a substantial tax bill of $44 billion to FTX and its affiliate, Alameda Research, citing accumulated unpaid taxes accumulated over several months. Following a protracted struggle and a significant reduction in the amount owed, FTX's financial woes are gradually easing.

According to a recent filing on June 3, 2024, the United States Bankruptcy Court for the District of Delaware has granted approval for the settlement request between FTX Trading Ltd and the IRS. This development aims to bring closure to the months-long dispute between the two parties.

The approved settlement significantly reduces FTX's total payable amount to $885 million, a substantial decrease from the IRS's initial $44 billion claim and its later reduction to $24 billion. This reduction followed FTX's argument against its responsibility for funds misappropriated by its founder, Sam Bankman-Fried, asserting that such a high amount would hinder its ongoing creditor settlement process.

While FTX acknowledged its tax obligations, the exchange contested the IRS's calculation and cited reasons for the liability, stating that the IRS's figures were significantly erroneous. The new $885 million bill is payable in two parts: a $200 million priority tax claim, which must be settled within 60 days of the effective date of approval, and an additional $685 million subordinated claim, payable after compensating other creditors and customers.

FTX's financial collapse in 2022 resulted in significant losses for numerous users, leaving the exchange with an $11 billion debt owed to approximately two million customers and other creditors. In recent months, efforts to compensate these customers have gained momentum, with the exchange announcing plans to reimburse users for their losses plus interest. So far, FTX has amassed up to $16.3 billion for distribution, primarily acquired from asset sell-offs and investment returns.

FTX is expected to commence distributions within 60 days of securing approval for its settlement plan. According to the exchange's current CEO, John Ray III, creditors with allowed claims below $50,000 would be eligible for 118% compensation.

The resolution of FTX's tax debt with the IRS substantially alleviates its financial strain, potentially expediting its repayment commitment to creditors. This development marks a significant step forward in FTX's bankruptcy proceedings, allowing the exchange to focus on restructuring efforts and satisfying its obligations to customers and creditors.