Facebook Might Owe The IRS As Much As $5 Billion In Back Taxes

Image courtesy of Facebook

You know what giant corporations really hate to do? Spend lots of their revenue on taxes. And you know what they have to do anyway? Exactly that. But the IRS is saying that Facebook may not have done enough of it, in past years, and may be on the hook for a big fat chunk of cash overdue to the U.S. government.

Facebook confirmed last week that it may face a tax bill of up to $5 billion, the Washington Post reports, but the company is not going to pay up without a fight.

This all stems from a decision Facebook made back in 2010, when it did what a lot of America’s biggest corporations do: transferred its “intangible” assets to an Irish holding company, so those assets get taxed at the lower Irish corporate tax rate instead of the U.S. one.

The IRS started investigating Facebook’s 2008-2010 tax situation way back in 2013, and that investigation continues today. In a court filing (PDF) from July, the IRS lays out the current state of the investigation.

When Facebook sent those assets overseas it retained a third party, Ernst & Young, to determine the value of its assets for income tax purposes, the IRS explains. And speaking with Facebook employees and reading public documents, the IRS has determined that the way Ernst & Young ended up valuing those assets was “problematic,” and that the valuations “were understated by billions of dollars.”

The IRS also says that Facebook has been failing to comply with its requests for internal documentation from 2010, blowing deadlines and refusing to answer the summonses for data, which “may be relevant to determine Facebook’s correct federal income tax liability” for that year.

In general, meanwhile, investors like to see that a company is keeping more of its money and paying as little tax as possible. Facebook’s recent quarterly investor report, from last week, shows that the company has managed significantly to bring down its tax burden over the years:

Facebook's tax rate slide from its July 27, 2016 presentation to investors.

Facebook’s tax rate slide from its July 27, 2016 presentation to investors.

In the wider world, corporations’ plans to move headquarters and divert assets overseas have come under fire this year, with the Treasury Department trying to finalize regulations that prevent businesses from moving assets for the sole purpose of reducing their tax burdens (as opposed to actually expanding operations in other countries).

Facebook could owe $5 billion in back taxes [Washington Post]

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