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 as to what on Earth is going on.
As has been put forth by readers, if unresolved claims are to blame, there’s nothing stopping the Trustee from putting aside an amount to secure these claims. What’s left can then be put towards paying out accepted claims, putting aside enough to continue the Receivership until outstanding matters are settled.
That brings us to the IRS’ claim, which at $414 million dollars is by far the largest outstanding claim yet to be resolved.
I haven’t seen any clarification on this from either the Trustee or the IRS, but the general sentiment seems to be if the IRS prevails, there won’t be anything left for TelexFree victims.
Seeing as the IRS’ claim is likely to clean the Trusteeship out, this is behind the ongoing claim distribution delays.
At the time of publication the court has not set a trial date for the TelexFree Trustee v. IRS lawsuit. We’ll keep an eye out for updates on the case docket, but in the meantime I think it’d go a long way for the Trustee to communicate with claim holders as to what is going on.
It’s been literally years since an official Trustee update regarding claims was sent out.
With respect to the possibility of the IRS prevailing in court, I think the Trustee said it best in his original complaint;
The IRS seeks to tax, not punish illegal activities.
The recognition of this rule is particularly appropriate in the present case, where the creditors of TelexFree are the millions of individuals who were defrauded by TelexFree and whose recovery will be substantially diminished by the claim of the IRS if it is allowed.
Pending either a long overdue update from the Trustee or setting of a trial date, stay tuned…
Update 28th April 2020 – As per an update from the TelexFree Trustee, a settlement on the IRS’ claims has been reached.