IRS takes Facebook to court over tax probe

IRS takes Facebook to court over tax probe

The government has taken Facebook to court to force the social media giant to hand over records that are part of a tax investigation by the IRS. 

The Justice Department filed a suit Wednesday in the Northern District of California as part of a three-year investigation into whether Facebook undervalued its property when it transferred the rights to much of its business to its international headquarters in Ireland in 2010. 

The legal filing comes as the IRS says the statute of limitations for the case is about to run out on July 31. 

In 2010, Facebook transferred the rights to its online platform and much of its international user base to a holding company in Ireland. For income tax purposes, it hired the firm Ernst & Young to value the property. 

Many U.S. tech companies have set up offices in places like Ireland because of the country’s favorable tax rate and other incentives. 

An early IRS assessment of Facebook’s valuation during its transfer was deemed “very problematic.”

“The IRS examination team’s preliminary positions suggested that the [Ernst & Young] valuations of the transferred intangibles were understated by billions of dollars,” according to court documents filed Wednesday. 

The IRS presented its findings to Facebook last year. But Facebook disputed them, saying that regulators didn’t have the right understanding of its user base, online platform, competitive threats and the role of mobile access to the platform. 

Facebook did not comment on the specific case. A spokesperson gave a general statement, saying, “Facebook complies with all applicable rules and regulations in the countries where we operate.”

The IRS decided to go back to the drawing board last year and retained experts to work on the case. 

The IRS has requested numerous documents since then but claims Facebook has not fully complied with those requests for information related to business risks, budget goals, user base growth, advertising, its online platform and international sales offices. 

It has asked the courts to now step in to force the production of documents.