IRS’ $429 million claim puts TelexFree victim payouts at risk

Although claim dispute filings continue to clog the TelexFree case docket, litigation between the Trustee and IRS is likely the reason no claim distributions have gone out.

We’ve known about the IRS’ claims against the Trustee for a while, but today is the first time we examine the case and what it potentially means for TelexFree victims.

The TelexFree Trustee v. IRS case dates back to a
July 2018 complaint
.

In the complaint the Trustee seeks to bar the IRS from collecting $429 million dollars.

The Trustee alleges the IRS’ claims are miscalculated, because

TelexFree had no taxable income for the specified years.

Although (TelexFree) earned current taxable income in calendar year 2012, the losses sustained by (TelexFree) in calendar years 2013 and 2014 offset any taxable income for calendar year 2012.

In October 2018 the Trustee
moved for partial summary judgment
on counts four and five of his complaint.

These counts pertained to the IRS’ claims for 2013 and 2014 (~$15 million).

The IRS filed its opposition in November 2018, which included it’s
own motion for partial summary judgment
on the same counts.

On February 2019 a hearing was held on the motions. The court took the matter under advisement.

In September 2019 the IRS filed a
second motion for partial summary judgment
, pertaining again to counts four and five.

The Trustee filed his
response in opposition
in November 2019.

A hearing was held on the motion on December 18th, 2019. Once again the matter was taken under advisement.

On March 26th, 2020, the court finally issued orders on the partial judgment motions:

The Trustee was
granted summary judgment
on counts four and five;

The IRS’s cross-motion on the same claims was denied; and

The IRS’ second motion for partial summary judgment was also denied.

All in all a win for the Trustee and TelexFree claim victims, however the lawsuit is far from over.

As per the Trustee’s original 2018 complaint, the IRS is seeking

an administrative claim aggregating approximately $69,000,000;

a priority unsecured claim of approximately $285,000,000; and

a non-priority unsecured claim of approximately $75,000,000.

Together this comes to $429 million. If we subtract the $15 million disallowed in counts four and five, the IRS still has claims totaling ~$414 million dollars.

Details on how much the Trustee is currently sitting on is surprisingly scarce. With Receivership’s they typically have to file periodic reports with the court. The Trustee has no such responsibility and I can’t find any recent filings detailing the Trustee’s current assets.

The
first and only claim status report
was filed back in April 2019, detailing $346 million in allowed claims at the time.

Since then there have been hundreds of claim related filings in the case, so what that number is now is anyone’s guess.

It’s no secret that the TelexFree victim claim process has unacceptably dragged on. We’re well past the point where victims deserve an update a

🤖 Quick Answer

What is the IRS $429 million claim against the TelexFree Trustee?

How does the IRS litigation affect TelexFree victim compensation?
The ongoing litigation between the Trustee and IRS is considered a primary factor preventing claim distributions to TelexFree victims. Until this dispute is resolved, victim payouts remain suspended despite continuous claim dispute filings clogging the case docket.

When did the TelexFree Trustee legal action against the IRS begin?
The TelexFree Trustee initiated legal proceedings

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