By James Davis
Several crypto bankruptcies have been recorded in recent months. However, only the FTX bankruptcy proceeding has had a Justice Department attorney appointed to represent Internal Revenue Service (IRS).
The IRS’s interest in the case is yet to be clarified. Also, it remains to be seen if the agency plans to file a lawsuit against the collapsed crypto exchange. However, the fact that IRS is involved says a lot, considering its previous interest in the customer data of exchanges like Kraken and Coinbase.
Former IRS Attorney Explains Agency’s Interest in FTX Bankruptcy Case
TaxBit’s director of government solutions, Miles Fuller, suggests that IRS is interested in the case because usually when a debtor files for bankruptcy, that case is assigned to an insolvency division within the IRS.
The IRS division follows the case proceedings, and when the agency becomes a creditor in that case, it files a proof of claim with no lawyers engaged. Fuller knows this as he has served as an IRS attorney for over 15 years before moving to TaxBit a few months ago.
According to Fuller, IRS may be trying to obtain the customer list that the court granted FTX permission to keep private until March 2023. If this is the actual interest of the agency, then it is not surprising since IRS has previously requested information from crypto firms alleged to be tax evaders.
In addition, Fuller says the IRS could also be scheming how FTX victims can claim their crypto assets at a loss without necessarily waiting for the bankruptcy proceeding to be determined. Claiming assets at a loss is a rule created by the IRS in 2009 for victims of Ponzi schemes.
Tax Attorney Suggests IRS Plans to File Lawsuit Against FTX
On the other hand, tax attorney Lisa Zarlenga says she is not optimistic about the agency making accommodations for victims of FTX. Zarlenga argues that the victims haven’t incurred a loss yet since the bankruptcy proceeding is not closed.
She adds that most victims would prefer to forgo an immediate benefit and wait to see what they can obtain from the bankruptcy case. As to why IRS has an attorney from Justice Department to represent it in the case, Zarlenga suggests that the agency might file its own suit against FTX.