IRS and Facebook Prepare to Battle in Tax Court, With $9 Billion at Stake

Chris Gaetano
Published Date:
Feb 10, 2020

The IRS and Facebook are set to clash in tax court this week over potentially $9 billion in back taxes that the government says the social media giant owes, according to the Wall Street Journal. The conflict, nine years in the making, centers around Facebook's use of an Irish subsidiary: Prior to the firm going public, Facebook funneled assets to the subsidiary, which was based in a much lower tax jurisdiction, and then valued those assets at relatively low amount, $7 billion, so as to minimize the size of royalty payments that would get sent back to the United States and therefore be taxed.

The IRS is claiming that Facebook seriously undervalued those assets, with its own analysis saying that their real value should be between $14 and $21 billion, which means that the social media giant owes $9 billion in unpaid taxes. Facebook, however, is arguing that it actually low-balled the initial valuation, and that the assets, because they were priced at a time when the company was uncertain about its direction, should actually be valued even lower, and therefore it is entitled to a refund. 

The Journal noted that the court decision will affect future efforts to reign in tax avoidance, particularly the ability for firms to filter profits through low-tax countries. The result will likely hinge on the valuation of the intangible assets, namely Facebook's user base, which it sent to Ireland. 

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